This is an initial public offering of shares of common stock of
Education Management Corporation, which we sometimes refer to in
this prospectus as EDMC. EDMC is offering all of the
shares of common stock to be sold in the offering.

Prior to this offering, there has been no public market for the
common stock. The initial public offering price per share is
$18.00. EDMC has received approval for the quotation of the
common stock on The NASDAQ Stock Market LLC under the symbol
EDMC.

See Risk Factors on page 14 to read about
factors you should consider before buying shares of the common
stock.

Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

Per Share

Total

Initial public offering price

$

18.00

$

360,000,000

Underwriting discount

$

1.08

$

21,600,000

Proceeds, before expenses, to EDMC

$

16.92

$

338,400,000

To the extent that the underwriters sell more than
20,000,000 shares of common stock, the underwriters have
the option to purchase up to an additional 3,000,000 shares
from EDMC at the initial public offering price less the
underwriting discount.

The underwriters expect to deliver the shares against payment in
New York, New York on October 7, 2009.

Through and including October 26, 2009 (the
25th day after the date of this prospectus), all dealers
effecting transactions in these securities, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.

No dealer, salesperson or other person is authorized to give
any information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.

We have not authorized anyone to give you any information or
to make any representations about the transactions we discuss in
this prospectus other than those contained in the prospectus. If
you are given any information or representation about these
matters that is not discussed in this prospectus, you must not
rely on that information. This prospectus is not an offer to
sell anywhere or to anyone where or to whom we are not permitted
to offer to sell securities under applicable law.

In making an investment decision, investors must rely on
their own examination of the issuer and the terms of the
offering, including the merits and risks involved. These
securities

have not been recommended by any federal or state securities
commission or regulatory authority. Furthermore, the foregoing
authorities have not confirmed the accuracy or determined the
adequacy of this document. Any representation to the contrary is
a criminal offense.

We have filed with the U.S. Securities and Exchange
Commission, or the SEC, a registration statement on
Form S-1
under the Securities Act with respect to the common stock
offered by this prospectus. This prospectus, filed as part of
the registration statement, does not contain all the information
set forth in the registration statement and its exhibits and
schedules, portions of which have been omitted as permitted by
the rules and regulations of the SEC. For further information
about us and our common stock, we refer you to the registration
statement and to its exhibits and schedules. With respect to
statements in this prospectus about the contents of any
contract, agreement or other document, in each instance, we
refer you to the copy of such contract, agreement or document
filed as an exhibit to the registration statement, and each such
statement is qualified in all respects by reference to the
document to which it refers.

The public may read and copy any reports or other information
that we and our subsidiaries file with the SEC. Such filings are
available to the public over the Internet at the SECs
website at
http://www.sec.gov.
The SECs website is included in this prospectus as an
inactive textual reference only. You may also read and copy any
document that we file with the SEC at its public reference room
at 100 F Street, N.E., Washington D.C. 20549. You may
obtain information on the operation of the public reference room
by calling the SEC at
1-800-SEC-0330.

Some of the industry and market data contained in this
prospectus are based on independent industry publications or
other publicly available information, while other information is
based on internal company sources. Although we believe that
these independent sources and our internal data are reliable as
of their respective dates, the information contained in them has
not been independently verified, and neither the underwriters
nor we can assure you as to the accuracy or completeness of this
information. As a result, you should be aware that the market
industry data contained in this prospectus, and beliefs and
estimates based on such data, may not be reliable. We obtained
information relating to the U.S. post-secondary education
market from the National Center for Education Statistics, which
is the primary federal entity for collecting and analyzing data
related to education, the College Board, the U.S. Census
Bureau, the U.S. Department of Labor  Bureau of
Labor Statistics and Eduventures Inc., a leading information
services company for the education market.

This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information you should consider before investing in our common
stock. You should read this entire prospectus carefully,
including the risks of investing in our common stock discussed
under Risk Factors and the financial statements and
notes included elsewhere in this prospectus.

On June 1, 2006, EDMC was acquired by a consortium of
private investors through a merger of an acquisition company
into EDMC, with EDMC surviving the merger. We sometimes refer to
that transaction in this prospectus as the
Transaction. Our principal shareholders are private
equity funds affiliated with Providence Equity Partners, Goldman
Sachs Capital Partners and Leeds Equity Partners, which we refer
to in this prospectus collectively as the Sponsors.
As used in this prospectus, unless otherwise stated or the
context otherwise requires, references to we,
us, our, the Company,
EDMC and similar references refer collectively to
Education Management Corporation and its subsidiaries. The term
Successor refers to us following the Transaction,
and the term Predecessor refers to us prior to the
Transaction. References to our fiscal year refer to the
12-month
period ended June 30 of the year referenced.

On September 30, 2009, our Board of Directors declared a
4.4737 for one split of our common stock, which was paid in the
form of a stock dividend on September 30, 2009. Unless
otherwise indicated or where the context otherwise requires, all
information in this prospectus reflects this stock split. We
sometimes refer to this stock split in this prospectus as the
Stock Split. In addition, in connection with the
Stock Split, we amended and restated our articles of
incorporation on September 30, 2009 to, among other things,
increase our number of authorized shares of common stock.

Our
Business

We are among the largest providers of post-secondary education
in North America, with approximately 110,800 enrolled students
as of October 2008. We offer academic programs to our students
through campus-based and online instruction, or through a
combination of both. We are committed to offering quality
academic programs and continuously strive to improve the
learning experience for our students. We target a large and
diverse market as our educational institutions offer students
the opportunity to earn undergraduate and graduate degrees,
including doctoral degrees, and certain specialized non-degree
diplomas in a broad range of disciplines. These disciplines
include design, media arts, health sciences, psychology and
behavioral sciences, culinary, fashion, business, legal,
education and information technology. Each of our schools
located in the United States is licensed in the state in which
it is located, accredited by a national or regional
accreditation agency and certified by the U.S. Department
of Education, enabling students to access federal student loans,
grants and other forms of public and private financial aid. Our
academic programs are designed with an emphasis on applied
content and are taught primarily by faculty members who, in
addition to having appropriate academic credentials, offer
practical and relevant professional experience in their
respective fields. Our net revenues for fiscal 2009 were
$2,011.5 million.

Our schools comprise a national education platform that is
designed to address the needs of a broad market, taking into
consideration various factors that influence demand, such as
programmatic and degree interest, employment opportunities,
requirements for credentials in certain professions,
demographics, tuition pricing points and economic conditions. We
believe that our schools collectively enable us to provide
access to a high quality education for potential students, at a
variety of degree levels and across a wide range of disciplines.

During our more than
35-year
operating history, we have expanded the reach of our education
systems and currently operate 92 primary locations across 28
U.S. states and in Canada. In addition, we have offered
online programs since 2000, enabling our students to pursue
degrees fully online or through a flexible combination of both
online and campus-based education. During the period from
October 1998 through October 2008, we experienced a compounded
annual enrollment growth rate of

18.0%. During the same time period, the schools that we have
owned or operated for one year or more experienced a compounded
annual enrollment growth rate of 12.0%. We seek to maintain
growth in a manner that assures adherence to our high standard
of educational quality and track record of student success.

Since the Transaction in June 2006, we have undertaken multiple
initiatives to increase our penetration of addressable markets
in order to enable us to accelerate our growth and expand our
market position. We have opened 20 new locations, acquired two
schools, developed 36 new academic programs and introduced over
600 new or existing academic programs to locations that had not
previously offered such programs. The compound annual enrollment
growth rate at our schools was 19.6% between July 2006 and July
2009. During the same time period, the compound annual
enrollment growth rate for schools owned or operated for one
year or more was 18.2%. We have made significant capital
investments in technology and human resources, particularly in
marketing and admissions, designed to facilitate future
enrollment growth while enhancing the effectiveness of our
marketing efforts. We have also upgraded our infrastructure,
student interfaces and student support systems to enhance the
student experience, while providing greater operational
transparency. We have made considerable investments in our
online education platform, which has resulted in strong
enrollment growth. The number of students enrolled in fully
online academic programs has grown more than five-fold to
approximately 26,200 students in July 2009, compared to
approximately 4,600 students in July 2006. Finally, we have
enhanced our senior management team, achieving a balance of
experience from both within and outside the for-profit education
industry.

Each of our 92 schools provides student-centered education. Our
schools are organized and managed to capitalize on recognized
brands and align them with specific targeted markets based on
field of study, employment opportunity, type of degree offering
and student demographics:



The Art Institutes. The Art Institutes focus
on applied arts in creative professions such as graphic design,
interior design, web design and interactive media, digital
filmmaking, media arts and animation, game art and design,
fashion design and marketing and culinary arts. The Art
Institutes offer Associates, Bachelors and
Masters degree programs, as well as selective non-degree
diploma programs. Students pursue their degrees through local
campuses, fully online programs through The Art Institute of
Pittsburgh, Online Division and blended formats, which combine
on campus and online education. There are 44 Art Institutes
campuses in 23 U.S. states and in Canada. As of October
2008, students enrolled at The Art Institutes represented
approximately 60.9% of our total enrollments.



Argosy University. Argosy University offers
academic programs in psychology and behavioral sciences,
education, business and health sciences disciplines. Argosy
offers Doctoral, Masters and undergraduate degrees.
Argosys academic programs focus on graduate students
seeking advanced credentials as a prerequisite to initial
licensing, career advancement
and/or
structured pay increases. Students pursue their degrees through
local campuses, fully online programs and blended formats. There
are 19 Argosy University campuses in 13 U.S. states. As of
October 2008, students enrolled at Argosy University represented
approximately 16.7% of our total enrollments.



Brown Mackie Colleges. Brown Mackie Colleges
offer flexible Associates and non-degree diploma programs
that enable students to develop skills for entry-level positions
in high demand vocational specialties and Bachelors degree
programs that assist students to advance within the workplace.
Brown Mackie Colleges offer programs in growing fields such as
nursing, medical assisting, business, criminal justice, legal
support and information technology. There are 22 Brown Mackie
College campuses in 11 U.S. states. As of October
2008, students enrolled at Brown Mackie Colleges represented
approximately 12.2% of our total enrollments.



South University. South University offers
academic programs in health sciences and business disciplines,
including business administration, health services management,

nursing, pharmacy, medical assisting, criminal justice and
information technology. South University offers Doctoral,
Masters, Bachelors and Associates degrees
through local campuses, fully online programs and blended
formats. There are six South University campuses in five
U.S. states. As of October 2008, students enrolled at South
University represented approximately 10.2% of our total
enrollments.

Our business model has a number of favorable financial
characteristics, including consistent historical enrollment
growth, high visibility into operational performance,
opportunity for future profit margin expansion and strong
operating cash flow generation, although the interest expense
relating to the significant indebtedness that we incurred in
connection with the Transaction has caused our net income to
decline in recent periods as compared to periods prior to the
Transaction.



History of consistent enrollment
growth. During the period from October 1998
through October 2008, we experienced a compounded annual
enrollment growth rate of 18.0%. During the same time period,
the schools that we have owned or operated for one year or
more experienced a compounded annual enrollment growth rate of
12.0%. We generally achieve growth through a number of
independent sources, including continued investment in existing
schools, the addition of schools (organically or through
acquisition) and new delivery channels, such as online. The
significant investments we have made since the Transaction in
numerous areas of our workforce, including marketing and
admissions, new campuses and online education and
infrastructure, are designed to support future enrollment.



High visibility into operational
performance. We believe that we benefit from a
business model with good insight into future revenue and
earnings, given the length of our academic programs.
Approximately 64% of our students as of October 2008 were
enrolled in Doctorate, Masters and Bachelors degree
programs, which are typically multi-year programs that
contribute to the overall stability of our student population.



Opportunity for future profit margin
expansion. Our business model benefits from scale
and permits us to leverage fixed costs across our delivery
platforms. Since the Transaction in June 2006, and
notwithstanding the increase in interest expense resulting from
the indebtedness that we incurred in connection with the
Transaction and the resulting adverse effect on our net income,
we have made significant investments in numerous areas of our
workforce in order to support future enrollment growth and
enhance the student experience. We expect that our business
model, along with the anticipated benefits of these investments,
will enable us over time to leverage our fixed costs as we add
new locations and expand our existing locations. With respect to
our online programs, we have built sufficient presence to enable
us over time to utilize shared technology and infrastructure. We
believe that our continued focus on information systems,
operating processes and key performance indicators will permit
us to enhance our educational quality, growth and profitability
over time, although we expect that expenses incurred with
respect to student financial aid initiatives will negatively
impact our profitability.



Strong operating cash flow generation. We
historically have generated strong cash flows. We benefit from
investments with attractive returns on capital and favorable
working capital balances due to advance payment of tuition and
fees. Since the Transaction, we have made significant
investments to support growth while simultaneously upgrading the
infrastructure required to leverage our delivery platforms. In
fiscal 2009, we generated cash flows from operations of
$293.4 million.

All of these characteristics complement the successful outcomes
that we deliver to our students, as reflected in our student
persistence and graduate employment rates and in student
satisfaction survey data. Approximately 87% of undergraduate
students who graduated from our institutions during the calendar
year ended December 31, 2008 and were available for
employment obtained a position in their field of study or a
related field within six months of graduation.

The U.S. Department of Education estimates that the
U.S. public and private post-secondary education market for
degree-granting institutions was a $450 billion industry in
2007, representing approximately 18.2 million students
enrolled at over 4,400 institutions. According to the National
Center of Education Statistics, traditional students, who
typically are recent high school graduates under 25 years
of age and are pursuing their first higher education degree,
represent approximately 62% of the national student population.
The remaining 38% of the student population is comprised of
non-traditional students, who are largely working adults
pursuing further education in their current field or are
preparing for a new career.

We believe that there are a number of factors contributing to
the long-term growth of the post-secondary education industry.
First, the shift toward a services-based economy increases the
demand for higher levels of education. According to the
U.S. Department of Labor  Bureau of Labor
Statistics, the projected growth rate for total job openings
from 2006 to 2016 for occupations that require post-secondary
education is over 15%, nearly double the growth rate for
occupations that do not require post-secondary education.
Second, economic incentives are favorable for post-secondary
graduates. According to the U.S. Census Bureau, in 2008,
the median weekly earnings for individuals aged 25 years
and older with a Bachelors degree was approximately 66%
higher than for high school graduates of the same age with no
college experience, and the average unemployment rate in 2008
for persons aged 25 years and older with a Bachelors
degree was half that of those without college experience. Third,
government and private financial aid in various forms, including
loan guarantees, grants and tax benefits for post-secondary
students, has continued to increase. We believe that this
support will continue as the U.S. government emphasizes the
development of a highly skilled, educated workforce to maintain
global competitiveness. Finally, the strong demand for
post-secondary education has enabled educational institutions to
consistently increase tuition and fees. According to the College
Board, public four-year colleges and universities have increased
tuition and fees by 7.4% annually on average over the last ten
years.

We believe that for-profit providers will capture an increasing
share of the growing demand for post-secondary education, which
has not been fully addressed by traditional public and private
universities. Non-profit public and private institutions can
face limited financial capability to expand their offerings in
response to the growing demand for education, due to a
combination of state funding challenges, significant
expenditures required for research and the professor tenure
system. Certain private institutions also may control
enrollments to preserve the perceived prestige and exclusivity
of their degree offerings.

As a result, we believe that for-profit, post-secondary
education providers continue to have significant opportunities
for growth. According to the National Center of Education
Statistics, the number of students at for-profit,
degree-granting institutions grew at an average annual rate of
13.7% from 1997 to 2007, compared to 2.3% growth for all
degree-granting institutions over the same period. For-profit
providers have continued their strong growth, primarily due to
the higher flexibility of their programmatic offerings and
learning structure, their emphasis on applied content and their
ability to consistently introduce new campuses and academic
programs. Despite rapid growth, the share of the post-secondary
education market that has been captured by for-profit providers
remains relatively small. In 2007, according to the National
Center for Education Statistics, for-profit institutions
accounted for 6.5% of all
degree-granting,
post-secondary enrollments, up from 2.3% in 1997.

We believe that growth in online education has been supported by
favorable student outcomes, the flexibility and convenience
associated with the instructional format and the higher
penetration of broadband Internet access. According to
Eduventures Inc., a leading information services company for the
education market, online education programs generated an
estimated $11.7 billion of revenues in 2008. Eduventures
estimates that online enrollment grew by 25.3% annually from
2003 to 2008 and projects growth of 12.5% annually from 2008 to
2013.

The post-secondary education industry is highly fragmented, with
no one provider controlling a significant share of the market.
Students choose among providers based on programs and degrees
offered, program flexibility and convenience, quality of
instruction, graduate employment rates, reputation and
recruiting effectiveness. This multi-faceted market
fragmentation results in significant differentiation among
various education providers, limited direct competition and
minimal overlap between for-profit providers. The main
competitors of for-profit, post-secondary education providers
are local public and private two-year junior and community
colleges, traditional public and private undergraduate and
graduate colleges and, to a lesser degree, other for-profit
providers.

We are committed to offering quality academic programs, and we
continuously strive to improve the learning experience for our
students. We are dedicated to recruiting and retaining quality
faculty and instructors with relevant industry experience and
appropriate academic credentials. Our advisory boards help us to
reassess and update our educational offerings on a regular basis
in order to ensure the relevance of our curriculum and to design
new academic programs. We do this with the goal of enabling
students to either enter or advance in their chosen field. Our
staff of trained, dedicated career services specialists
maintains strong relationships with employers in order to
improve our student graduate employment rates in their chosen
fields.

We offer academic programs primarily through four education
systems. We have devoted significant resources to establishing,
and continue to invest in developing, the brand identity for
each education system. Through The Art Institutes, Argosy
University, Brown Mackie Colleges and South University education
systems, we have the ability to align our academic program
offerings to address the unique needs of specific student
groups. Our marketing strategy is designed to develop brand
awareness among practitioners and likely prospects in particular
fields of study. We believe that this comprehensive brand
building approach in each specific market also enables us to
gain economies of scale with respect to student acquisition and
retention costs, assists in the recruitment and retention of
quality faculty and staff members and accelerates our ability to
expand online course offerings.



Diverse program offerings and broad degree
capabilities

Our breadth of programmatic and degree offerings enables us to
appeal to a diverse range of potential students. We currently
offer academic programs in the following areas: design, media
arts, health sciences, psychology and behavioral sciences,
culinary, fashion, business, legal, education and information
technology. Approximately 64% of our students as of October 2008
were enrolled in Doctorate, Masters and Bachelors
degree programs, which are typically multi-year programs that
contribute to the overall stability of our student population.
We monitor and adjust our education offerings based on changes
in demand for new programs, degrees, schedules and delivery
methods.



National platform of schools and integrated online
learning platform

The combination of our national platform of schools and
integrated online learning platform provides students at three
of our education systems with flexible curriculum delivery
options and academic programs taught on campus, online and in
blended formats. This flexibility enables our academic programs
to appeal to both traditional students and working adults who
may seek convenience due to scheduling, geographical or other
constraints.

We have 92 primary locations across 28 U.S. states and in
Canada. Our campuses are located primarily in large metropolitan
areas, and we focus our marketing efforts on generating demand
primarily within a
100-mile
radius of the campus. Throughout our history, we have invested
in our campuses in order to provide attractive and efficient
learning environments. Our schools offer many amenities found in
traditional colleges, including libraries, bookstores and
laboratories, as well as the industry-specific equipment
necessary for the various programs that we offer.

Our online presence offers a practical and flexible solution for
our students without compromising quality. We have made a
significant investment in online education by strengthening our
online presence within The Art Institutes, Argosy University and
South University education systems. We have introduced new
online academic programs, strengthened our technology
infrastructure, hired additional faculty and staff and increased
our spending on marketing and admissions. We intend to continue
to invest in the expansion of our online program offerings and
our marketing efforts to capitalize on our well-known branded
schools in order to expand our online presence. As of July 2009,
approximately 26,200 students were enrolled in fully online
programs.



Strong management team with a focus on long-term
performance

Since the Transaction, we have enhanced the depth and experience
of our senior management team, recruiting a number of executives
with specialized knowledge in key functional areas, such as
technology, marketing and finance. The current executive team
has been instrumental in directing investments to accelerate
enrollment growth and build infrastructure to establish a
platform for sustainable long-term growth. Furthermore, our
school presidents and senior operating executives have
substantial experience in the sector and have contributed to our
history of success. We plan to continue to build our strong
management team as we execute on our long-term growth strategy.

Our Growth
Strategy

We intend to support our growth through these three channels:



Introduce new and existing academic programs across our
national platform of schools

We seek to identify emerging industry trends in order to
understand the evolving educational needs of our students and
graduates. With the assistance of over 1,500 industry experts
and employers who actively participate on curriculum advisory
teams, we are able to rapidly develop new academic programs that
address specific market opportunities. We are also able to
tailor our existing proprietary content for courses across our
degree programs. New academic programs that we have introduced
since the Transaction include Masters degree programs in
Interior Design, Management, Principal Preparation and Health
Services Management, Bachelors degree programs in
Entertainment Design, Hotel and Restaurant Management and
Hospitality Management, and Associates degree programs in
Accessory Design, Early Childhood Education, Restaurant and
Catering Operations, Registered Nursing and Veterinary
Technician.

In addition to developing new academic programs, we frequently
introduce existing academic programs to additional locations in
our national platform of schools, allowing us to drive
incremental enrollment growth, utilize our existing curriculum
development in multiple locations and capitalize on identified
market needs.

2006 to approximately 26,200 students as of July 2009. We
believe that the fully online programs offered by The Art
Institute of Pittsburgh, Online Division, Argosy University and
South University allow us to offer academic programs that meet
the needs of a wide range of distance learning students. In
addition, our 92 schools operate under brands that are
well-known within various fields, and we believe that our online
programs benefit from our strong campus presence and related
marketing expenditures. Online offerings are also a cost
effective means for us to utilize many of our existing education
curricula and generate attractive returns on capital. We intend
to continue to invest in the expansion of our online program
offerings and enhance our marketing efforts to capitalize on our
well-known branded schools and further expand our online
presence.



Develop new school locations in attractive markets

We believe that many attractive locations are available to open
additional campuses across the United States. We have identified
target locations in new geographic markets, as well as
opportunities to open additional campuses within existing large
metropolitan areas. Because of the relatively large number of
potential markets available for opening new campuses, we focus
our efforts on markets that we believe offer the most attractive
projected growth and return on capital. We rigorously analyze
employment statistics and demographic data in order to align our
new schools with the specific educational needs of a targeted
market. This focus enables penetration and presence for new
schools. After entering a market, we drive incremental growth
through the introduction of new academic programs and degrees,
which enhance return on investment in new markets. We pursue
additional efficiencies through our centralized and standardized
infrastructure, systems and processes.

In addition, although we believe that our diverse platform of
program and degree offerings provides significant future growth
opportunities, we routinely consider acquisition opportunities
to increase the breadth of our education systems or provide
unique programmatic exposure within new markets.

Recent
Developments in Student Financial Assistance

In the United States, the largest sources of financial
assistance that enable students at our schools to pay for the
cost of their education are the federal student aid programs
under Title IV of the Higher Education Act of 1965, which
we refer to as the HEA. Additional sources of financial
assistance include other federal grant programs, state grant and
loan programs, private loan programs and institutional grants
and scholarships. A number of students also receive private
loans to fund a portion of their tuition and fees that they are
otherwise unable to pay through personal resources or
government-backed loan programs. During the fiscal year ended
June 30, 2009, approximately 81.5% and 13.1% of our net
revenues were indirectly derived from Title IV programs and
private loan programs, respectively, as compared to 70.2% and
22.3%, respectively, in the fiscal year ended June 30,
2008. We estimate that private loans will represent
approximately 6% of our net revenues in fiscal 2010. There have
been significant recent developments that have affected these
programs.

The maximum amount of annual Stafford loans available to an
undergraduate student increased by $2,000 effective July 1,
2008. Under a reauthorization bill which became law in August
2008, the HEA provides relief from this additional amount of
federal student aid under the 90/10 Rule described
elsewhere in this prospectus for those loans that are disbursed
before July 1, 2011. Additionally, effective July 1,
2009, the maximum amount available for a Pell grant increased to
$5,350 per year from a maximum of $4,731 per year in fiscal
2009. Due to these and other increases in the availability of
federal student aid, we anticipate that we will derive a higher
percentage of our net revenues from Title IV loan programs
during our fiscal year ended June 30, 2010 than we have in
prior years.

Due primarily to the current economic climate, there are fewer
providers of private loans to students attending our schools and
the remaining lenders have generally imposed more stringent
eligibility and underwriting standards. As a result, the
percentage of net revenues we indirectly derive

from private loans to students attending our schools decreased
substantially during our fiscal year ended June 30, 2009.
We anticipate that this trend will continue in fiscal 2010. In
response, we introduced a new student loan program with a
private lender in August 2008, which we refer to as the
Education Finance Loan program, which enables students who have
exhausted all available government-sponsored or other aid and
have been denied a private loan to finance a portion of their
tuition and other educational expenses. During fiscal 2009, our
disbursements under the program were approximately
$19 million. We estimate that additional disbursements
under this program during fiscal 2010 will be approximately
$75 million.

We are subject to certain risks related to our industry and our
business, and there are risks associated with investing in our
common stock. The risks set forth under the section entitled
Risk Factors beginning on page 14 of this
prospectus reflect risks and uncertainties that could
significantly and adversely affect our business, prospects,
financial condition, operating results and growth strategy. In
summary, significant risks related to our business include:

our introduction of the Education Finance Loan program with a
private lender that exposes us to additional collection risks,
increased working capital requirements and reduced cash flows,
as well as causes us to incur additional expenses;



our ability to effectively implement our growth strategies
through opening new schools, growing our online programs,
improving the content of our existing academic programs and
developing new academic programs on a timely basis and in a
cost-effective manner; and



consequences of our substantial leverage, including the impact
our leverage could have on our ability to raise additional
capital, react to changes in the economy or our industry, meet
our debt obligations or engage in specified types of
transactions.

In connection with your investment decision, you should review
the section of this prospectus entitled Risk Factors.

Education Management Corporation is a Pennsylvania corporation
founded in 1962. Our headquarters are located at 210 Sixth
Avenue, 33rd Floor, Pittsburgh, Pennsylvania 15222. Our
telephone number is
(412) 562-0900.
Our website is accessible through www.edmc.com. Information on,
or accessible through, this website is not a part of, and is not
incorporated into, this prospectus.

Argosy University, Brown Mackie College
and the names of certain of our other schools included in this
prospectus are our trademarks. We have omitted the
®
and
tm
trademark designations for such trademarks in this prospectus.
Nevertheless, all rights to such trademarks named in this
prospectus are reserved. All other brand names and tradenames
appearing in this prospectus are the property of their
respective holders.

20,000,000 shares of common stock, par value $0.01 per
share, of EDMC or our common stock.

Common stock to be outstanding after this offering

139,770,277 shares.

Use of proceeds

We will receive net proceeds from this offering of approximately
$338.4 million after deducting underwriting discounts and
commissions. We expect to (i) contribute up to
$323.9 million of the net proceeds from this offering to
our subsidiary, Education Management LLC, to repay a portion of
its indebtedness, (ii) pay $10.9 million of the
approximately $29.5 million termination fee under the
Sponsor Management Agreement and (iii) pay an estimated
$3.6 million in offering expenses. See Certain
Relationships and Related Transactions  Sponsor
Management Agreement.

Dividends

We do not expect to pay dividends on our common stock for the
foreseeable future.

NASDAQ Stock Market LLC symbol

EDMC

Risk factors

Please read Risk Factors and other information
included in this prospectus for a discussion of factors you
should carefully consider before deciding to invest in our
common stock.

Conflicts of Interest

Affiliates of Goldman, Sachs & Co. beneficially own
more than 10% of EDMC. For more information, see Conflicts
of Interest.

Unless we specifically state otherwise, the information in this
prospectus:



assumes no exercise of the underwriters option to purchase
additional shares;



excludes (i) 7,812,887 shares of our common stock
issuable upon the exercise of options outstanding as of
June 30, 2009, of which options to purchase
2,062,604 shares were exercisable as of June 30, 2009,
(ii) 441,855 additional shares of our common stock
authorized by the Board of Directors for future issuance under
the 2006 Stock Option Plan, and (iii) any shares of our
common stock which may be issued to satisfy our payment
obligations under the LTIC Plan; and



gives effect to the Stock Split.

If the underwriters exercise the underwriters option in
full, 142,770,277 shares of our common stock will be
outstanding after this offering.

The following table sets forth our summary consolidated
financial and other data as of the dates and for the periods
indicated. The summary consolidated balance sheet data as of
June 30, 2008 and 2009 and the summary consolidated
statement of operations data and the summary consolidated
statement of cash flows data for the fiscal years ended
June 30, 2007, 2008 and 2009 have been derived from our
audited consolidated financial statements and related notes
appearing elsewhere in this prospectus.

The summary consolidated financial and other data as of any date
and for any period are not necessarily indicative of the results
that may be obtained as of any future date or for any future
period.

The following tables also set forth summary unaudited
consolidated as adjusted balance sheet data as of June 30,
2009, which give effect to (i) the sale of
20,000,000 shares of common stock by us in this offering at
the initial public offering price of $18.00 per share and
(ii) the application of the net proceeds of this offering
as described under Use of Proceeds. The summary
unaudited consolidated as adjusted balance sheet data are
presented for informational purposes only and do not purport to
represent what our financial position actually would have been
had these transactions occurred on the dates indicated or to
project our financial position as of any future date.

You should read the following summary financial and other data
in conjunction with Selected Consolidated Financial and
Other Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes
included elsewhere in this prospectus.

EBITDA, a measure used by
management to measure operating performance, is defined as net
income plus interest expense, net, provision for income taxes
and depreciation and amortization, including amortization of
intangible assets. EBITDA is not a recognized term under
generally accepted accounting principles (GAAP) and
does not purport to be an alternative to net income as a measure
of operating performance or to cash flows from operating
activities as a measure of liquidity. Additionally, EBITDA is
not intended to be a measure of free cash flow available for
managements discretionary use, as it does not consider
certain cash requirements such as interest payments, tax
payments and debt service requirements. Our obligations to make
interest payments and our other debt service obligations have
increased substantially as a result of the indebtedness incurred
to finance the Transaction and to pay related expenses in June
2006. Management believes EBITDA is helpful in highlighting
trends because EBITDA excludes the results of decisions that are
outside the control of operating management and can differ
significantly from company to company depending on long-term
strategic decisions regarding capital structure, the tax
jurisdictions in which companies operate and capital
investments. Further, until fiscal 2009, we used EBITDA less
capital expenditures as a financial target for purposes of
determining cash bonuses granted pursuant to our Management
Incentive Compensation Plan (MICP), as described
under ManagementCompensation Discussion and
AnalysisCash Bonuses. In addition, management
believes that EBITDA provides more comparability between our
historical results and results that reflect purchase accounting
and the new capital structure. Management compensates for the
limitations of using non-GAAP financial measures by using them
to supplement GAAP results to provide a more complete
understanding of the factors and trends affecting the business
than GAAP results alone. Because

not all companies use identical
calculations, these presentations of EBITDA may not be
comparable to other similarly titled measures of other
companies. EBITDA is calculated as follows:

Year Ended

June 30,

2007

2008

2009

(In millions)

Net income

$

32.4

$

66.0

$

104.4

Interest expense, net

168.3

156.3

153.3

Provision for income taxes

27.2

41.2

61.1

Depreciation and
amortization (a)

90.6

100.3

112.3

EBITDA (b)

$

318.5

$

363.8

$

431.1

(a)

Depreciation and amortization
includes non-cash charges related to property, equipment and
intangible asset impairments of $5.5 million in fiscal 2008.

(b)

EBITDA, as presented above, is
different from the Adjusted EBITDA calculated for the purpose of
determining compliance with our senior secured credit agreement
and the indentures governing our
83/4% senior
notes due 2014 and our
101/4% senior
subordinated notes due 2016 (collectively, the
Notes). For an explanation of our Adjusted EBITDA,
see Management Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital
Resources.

(2)

The Art Institute of Toronto
announced in June 2007 that it will no longer accept new
students and that it will close after all current students
complete their respective programs. Prior to announcing this
closing, approximately 250 students attended The Art Institute
of Toronto.

(3)

The consolidated as adjusted
balance sheet data as of June 30, 2009 give effect to:



the sale of 20,000,000 shares
of common stock by us in this offering at the initial public
offering price of $18.00 per share;



the application of the net proceeds
of this offering as described under Use of Proceeds
and the use of cash on hand to pay approximately
$18.6 million of the approximately $29.5 million
termination fee under the Sponsor Management Agreement; and



the acceleration of a portion of
the amortization on deferred costs related to our indebtedness
which will be repaid as described under Use of
Proceeds of approximately $4.4 million.

You should carefully consider the following risks and all of
the other information set forth in this prospectus before
deciding to invest in shares of our common stock. The following
risks comprise all the material risks of which we are aware;
however, these risks and uncertainties may not be the only ones
we face. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial may also adversely
affect our business or financial performance. If any of the
events or developments described below actually occurred, it
could have a material adverse effect on our business, financial
condition or results of operations. In that case, the trading
price of our common stock would likely decline, and you could
lose all or part of your investment in our common stock.

RISKS RELATED TO
OUR HIGHLY REGULATED INDUSTRY

Failure of our
schools to comply with extensive regulations could result in
monetary liabilities or assessments, restrictions on our
operations, limitations on our growth or loss of external
financial aid funding for our students.

A majority of our net revenues are indirectly derived from
federal student financial aid programs pursuant to Title IV
of the Higher Education Act of 1965, as amended
(Title IV programs). Our participation in
Title IV programs is subject to certification and oversight
by the U.S. Department of Education and is further
conditioned upon approvals granted by other agencies. Each of
our schools also must obtain and maintain approval to enroll
students, offer instruction and grant credentials from the state
authorizing agency in the state in which the school is located.
Such approval is also a precondition to the ability of our
students to participate in Title IV programs. Participation
in Title IV programs also requires each school to be
accredited by an accrediting agency recognized by the
U.S. Department of Education as a reliable authority on
institutional quality and integrity. Accreditation is, in turn,
conditioned upon the maintenance of applicable state
authorization. Our schools also must comply with the
requirements of any loan guarantee agencies that guarantee
certain federal student loans made to our schools
students, the requirements of such state financial aid programs
as may be available to our students and the requirements of
specialized accrediting agencies which oversee educational
quality in particular program areas. Further, the Education
Finance Loan program that we introduced in August 2008 may
require us to obtain licenses, registrations or other forms of
regulatory approval. As a result, our schools are subject to
extensive regulation and review by these agencies which cover
virtually all phases of our operations. These regulations also
affect our ability to acquire or open additional schools, add
new educational programs, continue offering the Education
Finance Loan program, substantially change existing programs or
change our corporate or ownership structure. The agencies that
regulate our operations periodically revise their requirements
and modify their interpretations of existing requirements. See
Business  Accreditation,
Business  Student Financial Assistance,
Business  Federal Oversight of Title IV
Programs, Business  State Authorization
and Accreditation Agencies and Business 
Canadian Regulation and Financial Aid.

If any of our schools were to violate or fail to meet any of
these legal and regulatory requirements, we could suffer
monetary liabilities or assessments, limitations on our
operating activities, loss of accreditation, limitations on our
ability to add new schools or offer new programs, termination of
or limitations on the schools ability to grant degrees and
certificates, or limitations on or suspension or termination of
the schools eligibility to participate in federal student
financial aid programs. A significant portion of our students
rely on federal student financial aid funds to finance their
education. We cannot predict with certainty how all of these
requirements will be applied or interpreted by a regulatory body
or whether each of our schools will be able to comply with all
of the applicable requirements in the future.

If we fail to
obtain periodic recertifications for our schools to participate
in Title IV programs, or if our certifications are
withdrawn by the U.S. Department of Education prior to the next
scheduled recertification, students at the affected schools
would no longer be able to receive Title IV program
funds.

Our schools are required to seek recertifications from the
U.S. Department of Education periodically in order to
participate in Title IV programs. The current provisional
certifications of 18 of our schools expire between
September 30, 2009 and December 31, 2009, and our
applications for recertifications are due for submission three
months in advance of each expiration. The provisional
certifications for our other schools expire beginning on
June 30, 2011. The U.S. Department of Education will
also review our schools continued certifications in the
event that we undergo a change of ownership and control pursuant
to U.S. Department of Education regulations. In addition,
the U.S. Department of Education may take emergency action
to suspend any of our schools certification without
advance notice if it receives reliable information that a school
is violating Title IV requirements and determines that
immediate action is necessary to prevent misuse of Title IV
funds. If the U.S. Department of Education were to decide
not to renew or to withdraw our certification to participate in
Title IV programs at any time, our students no longer would
be able to receive Title IV program funds, which would have
a material adverse effect on our enrollments, revenues and
results of operations.

Congress may
change eligibility standards or reduce funding for federal
student financial aid programs, or other governmental or
regulatory bodies may change similar laws or regulations
relating to other student financial aid programs, which could
reduce the growth of our student population and
revenue.

Political and budgetary concerns can significantly affect
Title IV programs and other laws and regulations governing
federal and state student financial aid programs. Title IV
programs are made available pursuant to the provisions of the
HEA, and the HEA must be reauthorized by Congress approximately
every six years. Independent of reauthorization, Congress must
annually appropriate funds for Title IV programs. In August
2008, the most recent reauthorization of the HEA was enacted,
continuing the Title IV HEA programs through at least
September 30, 2014. Future reauthorizations or
appropriations may result in numerous legislative changes,
including those that could adversely affect our ability to
participate in the Title IV programs and the availability
of Title IV and non-Title IV funding sources for our
students. Congress also may impose certain requirements upon the
state or accrediting agencies with respect to their approval of
our schools. Any action by Congress or the U.S. Department
of Education that significantly reduces funding for the federal
student financial aid programs or the ability of our schools or
students to participate in these programs would have a material
adverse effect on our student population and revenue.
Legislative action also may increase our administrative costs
and require us to modify our practices in order for our schools
to comply fully with applicable requirements.

In September 2007, President Bush signed into law legislation
which, among other things, decreases private lender and guaranty
agency yields for participation in the Federal Family Education
Loan (FFEL) program, decreases student interest
rates on Stafford loans and limits repayment obligations for
students who receive loans pursuant to Title IV programs.
Decreased yields could discourage Title IV lenders from
continuing to provide private, federally guaranteed
Title IV loans to our students. The new HEA reauthorization
includes new notification and certification requirements for
private non-Title IV program educational loans and makes
them subject to the Truth in Lending Act requirements and
potential liabilities, which could adversely affect private
lenders ability to make such loans and thereby affect our
students ability to access private student loans.

Because a significant percentage of our revenue is derived from
Title IV and private loan programs, any action by Congress
that significantly reduces Title IV program funding, the
availability or attractiveness of private loans or the ability
of our schools or students to participate in Title IV
programs could have a material adverse effect on our business,
results of operations or financial

condition. Legislative action also could increase our
administrative costs and require us to adjust our practices in
order for our schools to comply fully with Title IV program
requirements.

If we do not
meet specific financial responsibility ratios and other
compliance tests established by the U.S. Department of
Education, our schools may lose eligibility to participate in
federal student financial aid programs, which may result in a
reduction in our student enrollment and an adverse effect on our
results of operations.

To participate in federal student financial aid programs, an
institution, among other things, must either satisfy certain
quantitative standards of financial responsibility on an annual
basis or post a letter of credit in favor of the
U.S. Department of Education and possibly accept other
conditions or limitations on its participation in the federal
student financial aid programs. As of June 30, 2009, we did
not meet the required quantitative measures of financial
responsibility on a consolidated basis.

We are required by the U.S. Department of Education to post
a letter of credit and are subject to provisional certification
and additional financial and cash monitoring of our
disbursements of Title IV funds due to our failure on a
consolidated basis to satisfy the financial responsibility
standards after the completion of the Transaction resulting from
the amount of debt we incurred to complete the Transaction. The
amount of this letter of credit is currently set at 10% of the
Title IV program funds received by students at our schools
during the prior fiscal year. As a result, we posted an
$87.9 million letter of credit in October 2006. Due to
increases in the aggregate amount of Title IV funds received by
our students, we currently post a $120.5 million letter of
credit with the U.S. Department of Education. Outstanding
letters of credit reduce the availability under our revolving
credit facility.

We expect to continue to not satisfy the U.S. Department of
Educations quantitative measure of financial
responsibility for the foreseeable future. As a result, we
expect each of our schools to be required to continue on
provisional certification for additional three-year periods. The
current provisional certifications of 18 of our schools expire
between September 30, 2009 and December 31, 2009.
Provisional certification for our other schools expires
beginning on June 30, 2011. We expect that the
U.S. Department of Educations evaluation of our
schools financial responsibility on the basis of our
consolidated financial statements will continue through future
annual reviews and may result in continuation of the requirement
that we maintain a letter of credit, provisional certification
and financial and cash monitoring in future years. Any
conditions or limitations on our participation in the federal
student financial aid programs in addition to the letter of
credit, provisional certification and additional financial and
cash monitoring could adversely affect our net income and
student population. We expect to be required to renew the letter
of credit at the 10% level for as long as our schools remain
provisionally certified, although the U.S. Department of
Education could increase the amount substantially. There can be
no assurance that the U.S. Department of Education will not
require further restrictions as a condition of the renewal of
our certification. Any failure to meet specific financial
responsibility ratios and other compliance tests established by
the U.S. Department of Education could affect our
students ability to access student financial assistance
programs, which would adversely affect our net income and
student population.

An institution may lose its eligibility to participate in some
or all of the federal student financial aid programs if defaults
by its students on their federal student loans exceed specified
rates. Certain of our schools have default rates in excess of
specified rates in the Federal Perkins Loan Program, which is
not a material federal student aid program for us or any of our
institutions. Though we believe our schools do not exceed either
the specified rates for student default for our material
programs or the percentage of revenue limitation test, loss of
eligibility to participate in the federal student financial aid
programs by one or more of our schools could have a material
adverse effect on our student population and revenue.

The consumer credit markets in the United States have recently
suffered from increases in default rates and foreclosures on
mortgages. Providers of federally guaranteed student loans have
also experienced recent increases in default rates. Any increase
in interest rates could contribute to higher default rates with
respect to repayment of our students education loans. Such
higher default

rates may adversely impact our eligibility to participate in
Title IV programs, which could result in a significant
reduction in our student population and our profitability.

In the event of a bankruptcy filing by any of our schools, the
schools filing for bankruptcy would not be eligible to receive
Title IV program funds, notwithstanding the automatic stay
provisions of federal bankruptcy law, which would make any
reorganization difficult to implement. In addition, our other
schools may be held to be jointly responsible for financial aid
defaults experienced at the bankrupt schools.

If any of our
schools either fails to demonstrate administrative
capability to the U.S. Department of Education or violates
other requirements of Title IV programs, the U.S.
Department of Education may impose sanctions or terminate that
schools participation in Title IV
programs.

Regulations adopted by the U.S. Department of Education
specify criteria an institution must satisfy to establish that
it has the requisite administrative capability to
participate in Title IV programs. These criteria require,
among other things, that the institution:



comply with all applicable federal student financial aid
regulations;



have capable and sufficient personnel to administer the federal
student financial aid programs;



have acceptable methods of defining and measuring the
satisfactory academic progress of its students;



provide financial aid counseling to its students; and



submit all reports and financial statements required by the
regulations.

If an institution fails to satisfy any of these criteria, or any
other of the legal and regulatory requirements of Title IV
programs, the U.S. Department of Education may:

transfer the institution from the advance system of
payment of federal student financial aid funds to the
reimbursement system of payment or cash
monitoring;



place the institution on provisional certification status; or



commence a proceeding to impose a fine or to limit, suspend or
terminate the participation of the institution in Title IV
programs.

If one or more of our schools loses or is limited in its access
to, or is required to repay, federal student financial aid funds
due to a failure to demonstrate administrative capability or to
comply with other requirements of Title IV programs, our
business could be materially adversely affected.

If our
institutions do not comply with the 90/10 Rule, they will lose
eligibility to participate in federal student financial aid
programs.

Regulations promulgated under the HEA require all for-profit
education institutions to comply with the 90/10 Rule, which
imposes sanctions on participating institutions that derive more
than 90% of their total revenue on a cash accounting basis from
Title IV programs. An institution that derives more than
90% of its total revenue on a cash accounting basis from the
Title IV programs for each of two consecutive fiscal years
loses its eligibility to participate in Title IV programs
and is not permitted to reapply for eligibility until the end of
the following two fiscal years. Institutions which fail to
satisfy the 90/10 Rule for one fiscal year are placed on
provisional certification. Compliance with the 90/10 Rule
is measured at the end of each of our fiscal years. For those of
our institutions that disbursed federal financial aid during
fiscal 2009, the percentage of revenues derived from
Title IV programs ranged from approximately 55% to 86%,
with a weighted average of approximately 70% as compared to a
weighted average of approximately 65% in fiscal 2008. We
anticipate that our 90/10 rates will continue to increase in
fiscal 2010 due to recent increases in grants from the Federal
Pell Grant (Pell) program and other Title IV
loan limits, coupled with decreases in the availability of state
grants and private loans and the inability of households to pay
cash due to the current economic climate. While our consolidated
90/10 rate for fiscal 2010 is projected to remain under the 90%
threshold, we project

that some of our institutions will exceed the 90% threshold if
we do not continue to successfully implement certain changes to
these institutions during the fiscal year which would decrease
their 90/10 rate, such as increases in international and
military students and certain internal restructuring designed to
achieve additional operational efficiencies. In prior years,
similar changes to operations resulted in lower 90/10 rates at
our institutions where we implemented such changes.
Additionally, the revised rules included in the new HEA
reauthorization include relief through June 30, 2011 from a
$2,000 increase in the annual Stafford loan availability for
undergraduate students which became effective July 1, 2008. We
anticipate that our 90/10 rate will increase substantially in
fiscal 2012 in the event that relief from this additional $2,000
is not extended beyond June 30, 2011, which would adversely
affect our ability to comply with the 90/10 Rule. Continued
decreases in the availability of state grants would also
adversely impact our ability to comply with the 90/10 Rule
because state grants generally are considered cash payments for
purposes of the 90/10 Rule. We continue to monitor the
compliance with the 90/10 Rule by each of our institutions and
assess the impact of increased financial aid received by our
students under the current rule. If any of our institutions
violates the 90/10 Rule, its ineligibility to participate in
Title IV programs for at least two years would have a
material adverse effect on our enrollments, revenues and results
of operations.

Our failure to
comply with various state regulations or to maintain any
national, regional or programmatic accreditation could result in
actions taken by those states or accrediting agencies that would
have a material adverse effect on our student enrollment and
results of operations.

Each of our U.S. campuses, including our campuses that
provide online programs, is authorized to offer education
programs and grant degrees or diplomas by the state in which
such school is physically located. The level of regulatory
oversight varies substantially from state to state. In some
U.S. states, the schools are subject to licensure by the
state education agency and also by a separate higher education
agency. Some states have sought to assert jurisdiction over
online educational institutions that offer educational services
to residents in the state or that advertise or recruit in the
state, notwithstanding the lack of a physical location in the
state. State laws may establish standards for instruction,
qualifications of faculty, location and nature of facilities,
financial policies and responsibility and other operational
matters. State laws and regulations may limit our ability to
obtain authorization to operate in certain states or to award
degrees or diplomas or offer new degree programs. Certain states
prescribe standards of financial responsibility that are
different from those prescribed by the U.S. Department of
Education. In addition, each of our U.S. schools is
accredited by a national or regional accreditation agency
recognized by the U.S. Department of Education, and some
educational programs are also programmatically accredited. The
level of regulatory oversight and standards can vary based on
the agency. Certain accreditation agencies prescribe standards
that are different from those prescribed by the
U.S. Department of Education. If we are found not to be in
compliance with an applicable state regulation and a state seeks
to restrict one or more of our business activities within its
boundaries, we may not be able to recruit or enroll students in
that state and may have to cease providing services and
advertising in that state, which could have a material adverse
effect on our student enrollment and revenues.

If one of our schools does not meet its accreditation or
applicable state requirements, its accreditation
and/or state
licensing could be limited, modified, suspended or terminated.
Failure to maintain licensure in the state where it is
physically located or institutional accreditation would make
such school ineligible to participate in Title IV programs,
which could have a material adverse effect on our student
enrollment and revenues. Further, requirements for programs
offered by our schools that are accredited by national
accrediting agencies with respect to retention rates, graduation
rates and employment placement rates may be more difficult to
satisfy due to the current economic recession in the U.S. If
programmatic accreditation is withdrawn or fails to be renewed
for any of the individual programs at any of our schools,
enrollment in such program could decline, which could have a
material adverse impact on student enrollment and revenues at
that school.

Loss of or
reductions in state financial aid programs for our students
could negatively impact our revenues from
students.

In fiscal 2009, approximately 3% of our net revenues were
indirectly derived from state financial aid programs. State
grant programs are generally subject to annual appropriation by
the state legislature, which may lead to the states
eliminating or significantly decreasing the amount of state aid
to students at our schools. Recently several states in which we
have schools have substantially decreased or eliminated the
amount of grants available to students who attend for-profit
post secondary institutions. The loss of access to these state
grants by our students could have a material adverse effect on
our business due to enrollment losses at our schools.

If regulators
do not approve transactions involving a change of control or
change in our corporate structure, we may lose our ability to
participate in federal student financial aid programs, which
would result in declines in our student enrollment, and thereby
adversely affect our results of operations.

If we or one of our schools experiences a change of ownership or
control under the standards of applicable state agencies,
accrediting agencies or the U.S. Department of Education,
we or the schools governed by such agencies must seek the
approval of the relevant agencies. Transactions or events that
could constitute a change of control include significant
acquisitions or dispositions of shares of our stock, internal
restructurings, acquisition of schools from other owners,
significant changes in the composition of a schools board
of directors or certain other transactions or events, several of
which are beyond our control. We have received confirmation from
the U.S. Department of Education, each of the applicable
institutional accrediting agencies and each of the applicable
state educational agencies that authorize or license our schools
that this offering will not constitute a change of control under
their respective standards. The failure of any of our schools to
reestablish its state authorization, accreditation or
U.S. Department of Education certification following a
transaction involving a change of ownership or control would
result in a suspension of operating authority or suspension or
loss of federal student financial aid funding, which could have
a material adverse effect on our student population and revenue.
Further, such a change of ownership or control could result in
the imposition of growth restrictions on our schools, including
limitations on our ability to open new campuses or initiate new
educational programs. Restrictions on growth such as these could
have a material adverse impact on our student population and
revenue and future growth plans. The potential adverse effects
of a change of control also could influence future decisions by
us and our shareholders regarding the sale, purchase, transfer,
issuance or redemption of our stock, which could discourage bids
for your shares of our common stock and could have an adverse
effect on the market price of your shares.

Government and
regulatory and accrediting agencies may conduct compliance
reviews, bring claims or initiate litigation against us, which
may adversely impact our licensing or accreditation status, and
thereby adversely affect our results of
operations.

From time to time, we may be subject to program reviews, audits,
investigations, claims of non-compliance or lawsuits by
governmental or accrediting agencies or third parties, which may
allege statutory violations, regulatory infractions or common
law causes of action. If the results of any such proceedings are
unfavorable to us, we may lose or have limitations imposed on
our accreditation, state licensing, state grant or Title IV
program participation, be required to pay monetary damages or be
subject to fines, penalties, injunctions or other censure that
could materially and adversely affect our business. We also may
be limited in our ability to open new schools or add new program
offerings and may be adversely impacted by the negative
publicity surrounding an investigation or lawsuit. Even if we
adequately address the issues raised by an agency review or
investigation or successfully defend a third-party lawsuit, we
may suffer interruptions in cash flows due to, among other
things, transfer from the advance funding to the
reimbursement or heightened cash
monitoring method of Title IV program funding, and we
may have to devote significant money and management resources to
address these issues, which could harm our business.
Additionally, we may experience adverse collateral consequences,
including declines in the number of students enrolling at our
schools and the

willingness of third parties to deal with us or our schools, as
a result of any negative publicity associated with such reviews,
claims or litigation.

Our regulatory
environment and our reputation may be negatively influenced by
the actions of other post-secondary education
institutions.

In recent years, there have been a number of regulatory
investigations and civil litigation matters targeting
post-secondary education institutions. These investigations and
lawsuits have alleged, among other things, deceptive trade
practices, false claims against the United States and
non-compliance with state and U.S. Department of Education
regulations. These allegations have attracted adverse media
coverage and have been the subject of federal and state
legislative hearings. Allegations against the overall student
lending and post-secondary education sectors may impact general
public perceptions of educational institutions, including us, in
a negative manner. Adverse media coverage regarding other
educational institutions or regarding us directly could damage
our reputation, reduce student demand for our programs,
adversely impact our revenues and operating profit or result in
increased regulatory scrutiny.

We do not have
significant experience in processing student loans through the
Direct Loan program and, if we are required to process all or a
substantial portion of our students federal loans through
this program, we could experience increases to our
administrative costs and delays to the receipt of federal loan
proceeds.

Loans to students at our U.S. schools under the FFEL/Direct loan
program represented approximately 69.9% of our net revenues in
fiscal 2009. President Obama has introduced a budget proposal
and a committee in the U.S. House of Representative has approved
a bill that would require all new federal student loans after
July 1, 2010 to be made through the Direct Loan program. While
all of our schools are eligible to participate in the Direct
Loan program, as of June 30, 2009 only Brown Mackie
College  Tucson and The Art Institute of Tucson
actively participated in the program. While we anticipate that
each of our U.S. based schools will participate in the Direct
Loan program by June 30, 2010, processing all or a significant
portion of our students federal loans through this program
will require a substantial change to our systems and operating
procedures, which could cause increases to our administrative
costs and delays to our receipt of federal student loan proceeds.

RISKS RELATED TO
OUR BUSINESS

If our
students were unable to obtain private loans from third party
lenders, our business could be adversely affected given our
reliance on such lenders as a source of net
revenues.

The education finance industry has been experiencing and may
continue to experience problems that have resulted in fewer
overall financing options for some of our students. Factors that
could impact the general availability of loans to our students
include:



changes in overall economic conditions or overall uncertainty or
disruption in capital markets, in either case causing lenders to
cease making student loans, limit the volume or types of loans
made or impose more stringent eligibility or underwriting
standards;



the financial condition and continued financial viability of
student loan providers, including Sallie Mae;



changes in applicable laws or regulations, such as provisions of
the recently-enacted HEA reauthorization that impose new
disclosure and certification requirements with respect to
private educational loans, that could have the effect of
reducing the availability of education financing, including as a
result of any lenders choosing to provide fewer loans or to stop
providing loans altogether in light of increased regulation, or
which could increase the costs of student loans; or

determinations by lenders to reduce the number of loans, or to
cease making loans altogether, to students attending or planning
to attend certain types of schools, particularly
for-profit
institutions.

During fiscal 2009, revenues derived indirectly from private
loans to students at our schools, excluding loans under our
Education Finance Loan program, represented approximately 13.1%
of our net revenues, as compared to approximately 22.3% of our
net revenues in fiscal 2008. We estimate that net revenues
derived indirectly from private loans to students attending our
schools will represent approximately 6% of net revenues in
fiscal 2010. These loans are provided pursuant to private loan
programs and are made available to eligible students at our
schools to fund a portion of the students costs of
education not covered by federal and state financial aid grants
due to increases in tuition and the cost of living. Private
loans are made to our students by institutions and are
non-recourse to us and our schools. Approximately 79% of the
private loans in fiscal 2009, or approximately
$206.5 million of private loans, were offered by Sallie Mae
and its affiliates and serviced by its affiliated loan servicer.

During fiscal 2009, adverse market conditions for consumer
student loans have resulted in providers of private loans
reducing the attractiveness
and/or
decreasing the availability of private loans to post-secondary
students, including students with low credit scores who would
not otherwise be eligible for credit-based private loans. In
order to provide student loans to certain of our students who do
not satisfy the new standard underwriting, we pay credit
enhancement fees to certain lenders (including Sallie Mae) based
on the principal balance of each loan disbursed by the lender.
An agreement we entered into with Sallie Mae to provide loans to
certain students who received a private loan from Sallie Mae
prior to April 17, 2008 and are continuing their education
but who do not satisfy Sallie Maes current standard
underwriting criteria expires in June 2010. There can be no
assurance that we will be able to extend the current agreement
or enter into a new agreement on acceptable terms, if at all. If
we were unable to do so, we would attempt to assist these
students in their pursuit of alternate financing options,
including through our Education Finance Loan program.

The consumer credit markets in the United States have recently
suffered from increases in default rates and foreclosures on
mortgages, which in some cases have called into question the
continued financial viability of certain student loan providers
and has resulted in fewer providers of student loans. Providers
of federally guaranteed student loans and alternative or private
student loans have also experienced recent increases in default
rates. Adverse market conditions for consumer and federally
guaranteed student loans have resulted in providers of private
loans reducing the attractiveness
and/or
decreasing the availability of private loans to post-secondary
students, including students with low credit scores who would
not otherwise be eligible for credit-based private loans.
Prospective students may find that these increased financing
costs make borrowing prohibitively expensive and abandon or
delay enrollment in post-secondary education programs. Certain
private lenders have also required that we pay them new or
increased fees in order to provide private loans to prospective
students.

While we are taking steps to address the private loan needs of
our students, the inability of our students to finance their
education could cause our student population to decrease, which
could have a material adverse effect on our financial condition,
results of operations and cash flows.

We recently
introduced the Education Finance Loan program, which could have
a material adverse effect on our financial condition, results of
operations and cash flows.

In August 2008, we introduced the Education Finance Loan
program, which enables students who have exhausted all available
government-sponsored
or other aid and have been denied a private loan to borrow a
portion of their tuition and other educational expenses at our
schools not covered by other financial aid sources if they or a
co-borrower meet certain eligibility and underwriting criteria.
During fiscal 2009, approximately 1.0% of our net revenues were
derived from loans under the

Education Finance Loan program. We estimate that additional
disbursements under this program during fiscal 2010 will be
approximately $75 million.

We will bear the risks of collection with respect to these loans
from students who do not meet eligibility and underwriting
standards of other commercial lenders. As a result, we expect
that our allowance for doubtful accounts and bad debt expense
will increase. Factors that may impact our ability to collect
these loans include general economic conditions, compliance with
laws applicable to the origination, servicing and collection of
loans, the quality of our loan servicers performance and
the priority that borrowers under these loans, particularly
students who did not complete or were dissatisfied with their
programs of study, attach to repaying these loans as compared to
other obligations. We also expect our accounts receivable and
days sales outstanding to increase from prior years. In
addition, because of restrictions imposed under our existing
debt arrangements or otherwise, this program, or any enlargement
or extension of this program, could adversely affect our ability
to make investments and incur indebtedness for the financing of
other aspects of our business, including acquisitions.

Approximately 1% of our student population currently
participates in the Education Finance Loan program, and a number
of factors may contribute to fewer students participating in the
program in the future than we currently expect. Students may
believe that loans under this program are undesirable, or we may
find that fewer students qualify for the program than we
anticipate. If other loans are not available to finance these
students education, they may choose not to attend our
schools. In addition, because the documents governing our debt
arrangements contain limitations on the amount of investments we
may make under the Education Finance Loan program, student
demand for loans under the program may exceed the applicable
limit from time to time. Finally, if the lender participating in
the program decides to discontinue its involvement, we may not
be able to engage substitute lenders or initiate a direct
financing or lending program in a timely manner on similar
terms, if at all.

Federal, state and local laws and public policy and general
principles of equity relating to the protection of consumers
apply to the origination, servicing and collection of the loans
that we purchase under this program. Any violation of the
various federal, state and local laws, including, in some
instances, violations of these laws by parties not under our
control, may result in losses on the loans that we purchase or
may limit our ability to collect all or part of the principal or
interest on the loans that we purchase. This may be the case
even if we are not directly responsible for the violations by
such parties.

Federal or state financial regulators also might delay or
suspend the Education Finance Loan program for a variety of
reasons, including as a result of concerns that the program
exposes our bank partners to unacceptable risks. Finally,
depending on the terms of the loans, state consumer credit
regulators may assert that our activities in connection with the
Education Finance Loan program require us to obtain one or more
licenses, registrations or other forms of regulatory approvals,
any of which may not be able to be obtained in a timely manner,
if at all.

Our business
may be adversely affected by a general economic slowdown or
recession in the U.S. or abroad.

The U.S. and other industrialized countries currently are
experiencing reduced economic activity, increased unemployment,
substantial uncertainty about their financial services markets
and, in some cases, economic recession. In addition, homeowners
in the United States have experienced a significant reduction in
wealth due to the decline in residential real estate values
across much of the country. These events may reduce the demand
for our programs among students, which could materially and
adversely affect our business, financial condition, results of
operations and cash flows. These adverse economic developments
also may result in a reduction in the number of jobs available
to our graduates and lower salaries being offered in connection
with available employment, which, in turn, may result in
declines in our placement and persistence rates. In addition,
these events could adversely affect the ability or willingness
of our former students to repay student loans, which could

increase our student loan cohort default rate and require
increased time, attention and resources to manage these
defaults. Further, the inability of students to pay their
tuition and fees in cash has, along with other factors, resulted
in a significant increase to our 90/10 rate.

The current
unprecedented disruptions in the credit and equity markets
worldwide may impede or prevent our access to the capital
markets for additional funding to expand or operate our business
and may affect the availability or cost of borrowing under our
existing credit facilities.

The credit and equity markets of both mature and developing
economies have experienced extraordinary volatility, asset
erosion and uncertainty in the last year, leading to
governmental intervention in the banking sector in the United
States and abroad on an unprecedented scale. Until these market
disruptions diminish, we may not be able to access the capital
markets to obtain funding needed to refinance our existing
indebtedness or expand our business. In addition, changes in the
capital or other legal requirements applicable to commercial
lenders may affect the availability or increase the cost of
borrowing under our senior secured credit facilities. If we are
unable to obtain needed capital on terms acceptable to us, we
may have to limit our growth initiatives or take other actions
that materially adversely affect our business, financial
condition, results of operations and cash flows.

We may have
difficulty opening additional new schools and growing our online
academic programs, and we may be unable to achieve the
anticipated return on our investment.

We anticipate continuing to open new schools in the future.
Establishing new schools poses unique challenges and requires us
to make investments in management, capital expenditures,
marketing expenses and other resources. When opening a new
school, we are required to obtain appropriate state or
provincial and accrediting agency approvals. In addition, to be
eligible for federal student financial aid programs, a school
has to be certified by the U.S. Department of Education.
Further, our debt agreements include limitations on the amount
of capital expenditures we may make on an annual basis. Our
failure to effectively manage the operations of newly
established schools or service areas, or any diversion of
managements attention from our core school operating
activities, could harm our business.

We anticipate significant future growth from online courses we
offer to students. As of June 30, 2009, we offer fully
online programs at The Art Institute of Pittsburgh, Online
Division, Argosy University and South University. We plan to
continue to introduce new online programs at these schools in
the future. The success of any new online programs and classes
depends in part on our ability to expand the content of our
programs, develop new programs in a cost-effective manner and
meet the needs of our students in a timely manner. The expansion
of our existing online programs, the creation of new online
classes and the development of new fully online programs may not
be accepted by students or the online education market for many
reasons, including as a result of the expected increased
competition in the online education market or because of any
problems with the performance or reliability of our online
program infrastructure. In addition, a general decline in
Internet use for any reason, including due to security or
privacy concerns, the cost of Internet service or changes in
government regulation of Internet use may result in less demand
for online educational services, in which case we may not be
able to grow our online programs as planned.

We may not be
able to implement our growth strategy optimally if we are not
able to improve the content of our existing academic programs or
to develop new programs on a timely basis and in a
cost-effective manner.

We continually seek to improve the content of our existing
academic programs and develop new programs in order to meet
changing market needs. Revisions to our existing academic
programs and the development of new programs may not be accepted
by existing or prospective students or employers in all
instances. If we cannot respond effectively to market changes,
our business may be

adversely affected. Even if we are able to develop acceptable
new programs, we may not be able to introduce these new programs
as quickly as students require or as quickly as our competitors
are able to introduce competing programs. Our efforts to
introduce a new academic program may be conditioned or delayed
by requirements to obtain federal, state and accrediting agency
approvals. The development of new programs and classes, both
conventional and online, is subject to requirements and
limitations imposed by the U.S. Department of Education,
state licensing agencies and the relevant accrediting bodies.
The imposition of restrictions on the initiation of new
educational programs by any of our regulatory agencies may delay
such expansion plans. If we do not respond adequately to changes
in market requirements, our ability to attract and retain
students could be impaired and our financial results could
suffer.

Establishing new academic programs or modifying existing
academic programs also may require us to make investments in
specialized personnel and capital expenditures, increase
marketing efforts and reallocate resources away from other uses.
We may have limited experience with the subject matter of new
programs and may need to modify our systems and strategy. If we
are unable to increase the number of students, offer new
programs in a cost-effective manner or otherwise manage
effectively the operations of newly established academic
programs, our results of operations and financial condition
could be adversely affected.

Our marketing
and advertising programs may not be effective in attracting
prospective students, current students or potential employers of
our graduates.

In order to maintain and increase our revenues and margins, we
must continue to attract new students in a cost-effective
manner. Over the last several fiscal years, we have increased
the amounts spent on marketing and advertising, and we
anticipate that this trend will continue. If we are unable to
successfully advertise and market our schools and programs, our
ability to attract and enroll new students could be adversely
impacted and, consequently, our financial performance could
suffer. We use marketing tools such as the Internet, radio,
television and print media advertising to promote our schools
and programs. Our representatives also make presentations at
high schools. If we are unable to utilize these advertising
methods in a cost-effective manner or if our other costs limit
the amount of funds we can contribute to advertising, our
profitability and revenue may suffer. Additionally, we rely on
the general reputation of our schools and referrals from current
students, alumni and employers as a source of new students.
Among the factors that could prevent us from successfully
marketing and advertising our schools and programs are the
failure of our marketing tools and strategy to appeal to
prospective students or current student
and/or
employer dissatisfaction with our program offerings or results
and diminished access to high school campuses.

A decline in
the overall growth of enrollment in post-secondary institutions
could cause us to experience lower enrollment at our schools,
which would negatively impact our future growth.

According to the U.S. Department of Education, enrollment
in degree-granting, post-secondary institutions is projected to
grow 11.7% over the
ten-year
period ending in the fall of 2017 to approximately
20.1 million students. This growth compares with a 24.0%
increase reported in the prior
ten-year
period ended in 2007, when enrollment increased from
14.5 million students in 1997 to 18.0 million students
in 2007. While enrollment growth in the
ten-year
period ended 2007 was accompanied by a 23.7% increase in high
school graduates from 2.7 million students in 1997 to
3.3 million students in 2007, the U.S. Department of
Education is not projecting any significant growth in the number
of high school graduates through 2017.

Our
substantial leverage could adversely affect our ability to raise
additional capital to fund our operations, limit our ability to
react to changes in the economy or our industry and expose us to
interest rate risk to the extent of our variable rate
debt.

The following chart shows our level of consolidated indebtedness
at June 30, 2009 (in millions), as adjusted to reflect the
sale of 20,000,000 shares of common stock by us in this
offering at the

initial public offering price of $18.00 per share and the
application of the net proceeds of this offering as described
under Use of Proceeds.

Revolving credit
facility(1)

$

100.0

Senior secured term loan facility

1,126.8

83/4% senior
notes due 2014

223.7

101/4% senior
subordinated notes due 2016

239.1

Capital leases

0.6

Mortgage debt of consolidated entity

1.2

Total

$

1,691.4

(1)

Upon the closing of the Transaction, we entered into a
$300.0 million revolving credit facility with a six-year
maturity. The revolving credit facility was increased to
$322.5 million in February 2008 and to $388.5 million
in August 2009. Upon consummation of this offering, the
revolving credit facility will automatically increase to
$442.5 million. As of June 30, 2009, we had an
aggregate of $137.8 million in outstanding letters of
credit, including $121.1 million of letters of credit
issued to the U.S. Department of Education due primarily to our
failure to satisfy certain regulatory financial ratios after
giving effect to the Transaction. Outstanding letters of credit
reduce the availability under our revolving credit facility.

Our high degree of leverage could have important consequences
for you, including:



making it more difficult for us to make payments on our
indebtedness;



increasing our vulnerability to general economic and industry
conditions;



requiring a substantial portion of cash flows from operations to
be dedicated to the payment of principal and interest on our
indebtedness, therefore reducing our ability to use our cash
flows to fund our operations, capital expenditures and future
business opportunities;



increasing the likelihood of our not satisfying, on a
consolidated basis, the U.S. Department of Educations
annual responsibility requirements and subjecting us to letter
of credit and provisional certification requirements for the
foreseeable future;



exposing us to the risk of increased interest rates as certain
of our borrowings, including borrowings under our senior secured
credit facilities, will bear interest at variable rates;



restricting us from making strategic acquisitions or causing us
to make non-strategic divestitures;



limiting our ability to obtain additional financing for working
capital, capital expenditures, program development, debt service
requirements, acquisitions and general corporate or other
purposes; and



limiting our ability to adjust to changing market conditions and
placing us at a competitive disadvantage compared to our
competitors who are less highly leveraged.

In addition, we and our subsidiaries may be able to incur
substantial additional indebtedness in the future, subject to
the restrictions contained in our senior secured credit
facilities and the indentures governing our Notes. If new
indebtedness is added to our current debt levels, the related
risks that we now face could intensify.

We may not be
able to generate sufficient cash to service all of our debt
obligations and may be forced to take other actions in an effort
to satisfy our obligations under such indebtedness, which may
not be successful.

Our ability to make scheduled payments on our indebtedness, or
to refinance our obligations under our debt agreements on
acceptable terms, if at all, will depend on our financial and
operating

performance, which is subject to prevailing economic and
competitive conditions and to the financial and business risk
factors described in this prospectus, many of which are beyond
our control. We cannot assure you that we will be able to
maintain a level of cash flows from operating activities
sufficient to permit us to pay the principal, premium, if any,
and interest on our indebtedness. If our cash flows and capital
resources are insufficient to fund our debt service obligations,
we may be forced to reduce or delay the opening of new schools,
acquisitions or capital expenditures, sell assets, seek to
obtain additional equity capital or restructure our
indebtedness. We also cannot assure you that we will be able to
refinance any of our indebtedness or obtain additional financing
on acceptable terms, if at all, particularly because of our high
levels of debt and the debt incurrence restrictions imposed by
the agreements governing our debt.

Our senior secured credit facilities and the indentures
governing the Notes contain various covenants that limit our
ability to engage in specified types of transactions. These
covenants limit certain of our subsidiaries ability to,
among other things:



incur additional indebtedness or issue certain preferred shares;



pay dividends on, repurchase or make distributions in respect of
capital stock or make other restricted payments;



make certain investments, including capital expenditures;



sell certain assets;



create liens;



consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets; and



enter into certain transactions with affiliates.

In addition, under our senior secured credit agreement, we are
required to satisfy and maintain specified financial ratios and
other financial condition tests. Our ability to meet those
financial ratios and tests can be affected by events beyond our
control, and we cannot assure you that we will meet those ratios
and tests. A breach of any of these covenants could result in a
default under the senior secured credit agreement. Upon the
occurrence of an event of default under the senior secured
credit agreement, the lenders could elect to declare all amounts
outstanding under the senior secured credit agreement
immediately due and payable and terminate all commitments to
extend further credit. If we were unable to repay those amounts,
the lenders under the senior secured credit facilities could
proceed against the collateral granted to them to secure that
indebtedness. Certain of our subsidiaries have pledged a
significant portion of our assets as collateral under the senior
secured credit agreement. If the lenders accelerate the
repayment of borrowings, we cannot assure you that we will have
sufficient assets to repay our indebtedness under our senior
secured credit facilities, as well as our unsecured
indebtedness. See Description of Certain
Indebtedness.

The success of our schools depends to a large extent on the
willingness of prospective employers to employ our students upon
graduation. Increasingly, employers demand that their new
employees possess appropriate technological skills and also
appropriate soft skills, such as communication,
critical thinking and teamwork skills. These skills can evolve
rapidly in a changing economic and technological environment.
Accordingly, it is important that our educational programs
evolve in response to those economic and technological changes.
The expansion of existing academic programs and the development
of new programs may not be accepted by current or prospective
students or the employers of our graduates. Even if our schools
are able to develop acceptable new programs, our schools may not
be able to begin offering those new programs as quickly as
required

by prospective employers or as quickly as our competitors offer
similar programs. If we are unable to adequately respond to
changes in market requirements due to regulatory or financial
constraints, unusually rapid technological changes or other
factors, our ability to attract and retain students could be
impaired, the rates at which our graduates obtain jobs involving
their fields of study could suffer and our results of operations
and cash flows could be adversely affected.

Failure to
obtain additional capital in the future could adversely effect
our ability to grow.

We believe that funds from operations, cash, investments and
borrowings under our revolving credit facility will be adequate
to fund our current operating plans for the foreseeable future.
However, we may need additional debt or equity financing in
order to finance our continued growth. The amount and timing of
such additional financing will vary principally depending on the
timing and size of acquisitions and new school openings, the
willingness of sellers to provide financing for future
acquisitions and the amount of cash flows from our operations.
To the extent that we require additional financing in the future
and are unable to obtain such additional financing, we may not
be able to fully implement our growth strategy.

Failure to
effectively manage our growth could harm our
business.

Our business recently has experienced rapid growth. Growth and
expansion of our operations may place a significant strain on
our resources and increase demands on our management information
and reporting systems, financial management controls and
personnel. We may not be able to maintain or accelerate our
current growth rate, effectively manage our expanding operations
or achieve planned growth on a timely or profitable basis. If we
are unable to manage our growth effectively, we may experience
operating inefficiencies and our net income may be materially
adversely affected.

Capacity
constraints or system disruptions to our online computer
networks could have a material adverse effect on our ability to
attract and retain students.

The performance and reliability of the program infrastructure of
our schools online operations is critical to the
reputation of these campuses and our ability to attract and
retain students. Any computer system error or failure, or a
sudden and significant increase in traffic on our computer
networks that host our schools online operations, may
result in the unavailability of our schools online
operations computer networks. In addition, any significant
failure of our computer networks could disrupt our on campus
operations. Individual, sustained or repeated occurrences could
significantly damage the reputation of our schools online
operations and result in a loss of potential or existing
students. Additionally, our schools online computer
systems and operations are vulnerable to interruption or
malfunction due to events beyond our control, including natural
disasters and network and telecommunications failures. Any
interruption to our schools online computer systems or
operations could have a material adverse effect on the ability
of our schools online operations to attract and retain
students.

The personal
information that we collect may be vulnerable to breach, theft
or loss that could adversely affect our reputation and
operations.

Possession and use of personal information in our operations
subjects us to risks and costs that could harm our business. Our
schools collect, use and retain large amounts of personal
information regarding our students and their families, including
social security numbers, tax return information, personal and
family financial data and credit card numbers. We also collect
and maintain personal information of our employees in the
ordinary course of our business. Our computer networks and the
networks of certain of our vendors that hold and manage
confidential information on our behalf may be vulnerable to
unauthorized access, computer hackers, computer viruses and
other security threats. Confidential information also may become
available to third parties inadvertently when we integrate or
convert computer networks into our network following an
acquisition of a school or in connection with upgrades from time
to time.

Due to the sensitive nature of the information contained on our
networks, such as students grades, our networks may be
targeted by hackers. A user who circumvents security measures
could misappropriate proprietary information or cause
interruptions or malfunctions in our operations. Although we use
security and business controls to limit access and use of
personal information, a third party may be able to circumvent
those security and business controls, which could result in a
breach of student or employee privacy. In addition, errors in
the storage, use or transmission of personal information could
result in a breach of student or employee privacy. Possession
and use of personal information in our operations also subjects
us to legislative and regulatory burdens that could require
notification of data breaches and restrict our use of personal
information. As a result, we may be required to expend
significant resources to protect against the threat of these
security breaches or to alleviate problems caused by these
breaches. A major breach, theft or loss of personal information
regarding our students and their families or our employees that
is held by us or our vendors could have a material adverse
effect on our reputation and results of operations and result in
further regulation and oversight by federal and state
authorities and increased costs of compliance.

We may not be
able to retain our key personnel or hire and retain additional
personnel needed for us to sustain and grow our business as
planned.

Our success depends, in large part, upon our ability to attract
and retain highly qualified faculty, school presidents and
administrators and corporate management. We may have difficulty
locating and hiring qualified personnel, and retaining such
personnel once hired. In addition, key personnel may leave and
subsequently compete against us. The loss of the services of any
of our key personnel, many of whom are not party to employment
agreements with us, or our failure to attract and retain other
qualified and experienced personnel on acceptable terms could
impair our ability to successfully sustain and grow our
business, which could have a material adverse effect on our
results of operations.

If we are not
able to integrate acquired schools, we may experience
operational inefficiencies.

From time to time, we engage in acquisitions of schools.
Integrating acquired operations into our institutions involves
significant risks and uncertainties, including:

distraction of managements attention from normal business
operations during the integration process;



expenses associated with the integration efforts; and



unidentified issues not discovered in our due diligence process,
including legal contingencies.

Our inability
to operate one or more of our schools or locations due to a
natural disaster, terrorist act or widespread epidemic or to
restore a damaged school or location to its prior operational
level could materially hurt our operating results.

A number of our schools are located in Florida and elsewhere in
the southeastern United States in areas prone to hurricane
damage, which may be substantial. We also have a number of
schools located in California in areas vulnerable to
earthquakes. One or more of these schools may be unable to
operate for an extended period of time in the event of a
hurricane, earthquake or other natural disaster which does
substantial damage to the area in which a school is located. In
addition, we may not be in a position to devote sufficient
resources to a damaged school in order for it to re-open in a
timely fashion or at the same level of operation as existed
prior to the damage. Further, a regional or national outbreak
of influenza or other illness easily spread by human contact
could cause us to close one or more of our schools for an
extended period of time. The failure of one or more of our
schools

to operate for a substantial period of time could have a
material adverse effect on our results of operations.

We have a significant concentration of admissions
representatives for our fully online schools in two
geographically separate locations. A natural disaster or
terrorist act which affected one of these locations could result
in our inability to contact prospective students for our fully
online programs for an extended period of time, which would
result in a significantly lower number of new students enrolling
in our programs.

We operate in
a highly competitive industry, and competitors with greater
resources could harm our business.

The post-secondary education market is highly fragmented and
competitive. Our schools compete for students with traditional
public and private two-year and four-year colleges and
universities and other for-profit providers, including those
that offer online learning programs. Many public and private
colleges and universities, as well as other for-profit
providers, offer programs similar to those we offer. We expect
to experience additional competition in the future as more
colleges, universities and for-profit providers offer an
increasing number of online programs. Public institutions
receive substantial government subsidies, and public and private
institutions have access to government and foundation grants,
tax-deductible contributions and other financial resources
generally not available to for-profit providers. Accordingly,
public and private institutions may have instructional and
support resources superior to those in the for-profit sector,
and public institutions can offer substantially lower tuition
prices. Some of our competitors in both the public and private
sectors also have substantially greater financial and other
resources than we do.

We could
experience an event of default under our senior secured credit
agreement if the Sponsors cease to own an aggregate of at least
35% of the voting interests of our outstanding capital stock,
and such an event of default could adversely effect our
liquidity and financial position.

Under the current terms of our senior secured credit agreement,
an event of default would occur if the Sponsors cease to own,
collectively, at least 35% of the voting interests of our
outstanding capital stock. This event of default could be
triggered during the term of the senior secured credit agreement
either by future sales or transfers of our capital stock by any
of the Sponsors or by additional issuances of voting capital
stock by us. Upon completion of this offering, the Sponsors will
own, in the aggregate, approximately 70.7% of the voting
interests of our outstanding capital stock (or 69.2% assuming
the exercise in full of the underwriters option to
purchase additional shares) of the voting interests of our
outstanding capital stock.

Because we cannot control when future transactions by any of the
Sponsors will occur, we cannot assure you that one or more
Sponsors will not engage in transactions that trigger an event
of default under the current terms of our senior secured credit
agreement, or that we will be able to amend this provision of
our senior secured credit agreement prior to any such sale or
transfer. If an event of default occurs as a result of a future
sale or transfer by any of the Sponsors, the lenders could elect
to declare all amounts outstanding under the senior secured
credit agreement to be immediately due and payable and terminate
all commitments to extend further credit. It is possible that we
would not be in a position at that time to refinance the amounts
due under the senior secured credit agreement on economical
terms, or at all, or repay the amounts due to the lenders, and
the lenders then could proceed against the collateral securing
our indebtedness.

If we expand
in the future into new markets outside the United States, we
would be subject to risks inherent in non-domestic
operations.

If we acquire or establish schools in new markets outside the
United States, we will face risks that are inherent in
non-domestic operations, including the complexity of operations
across borders, currency exchange rate fluctuations, monetary
policy risks, such as inflation, hyperinflation and deflation,
and potential political and economic instability in the
countries into which we expand.

There is no
existing market for our common stock, and we do not know if one
will develop to provide you with adequate
liquidity.

Immediately prior to this offering, there has been no public
market for our common stock. An active and liquid public market
for our common stock may not develop or be sustained after this
offering. The price of our common stock in any such market may
be higher or lower than the price you pay. If you purchase
shares of common stock in this offering, you will pay a price
that was not established in a competitive market. Rather, you
will pay the price that we negotiated with the representatives
of the underwriters and such price may not be indicative of
prices that will prevail in the open market following this
offering.

The market
price of our common stock may be volatile, which could cause the
value of your investment to decline or could subject us to
securities class action litigation.

Many factors could cause the market price of our common stock to
rise and fall, including the following:

our or our competitors introduction of new schools, new
programs, concepts, or pricing policies;



recruitment or departure of key personnel;



changes in the estimates of our operating performance or changes
in recommendations by any securities analyst that follows our
stock;



changes in the conditions in the education industry, the
financial markets or the economy as a whole;



substantial sales of our common stock;



failure of any of our schools to secure or maintain
accreditation;



announcements of regulatory or other investigations, adverse
regulatory action by the U.S. Department of Education,
state agencies or accrediting agencies, regulatory scrutiny of
our operations or operations of our competitors or lawsuits
filed against us or our competitors; and



changes in accounting principles.

Market volatility, as well as general economic, market or
potential conditions, could reduce the market price of our
common stock in spite of our operating performance. In the past,
following periods of volatility in the market price of a
companys securities, securities class action litigation
often has been brought against that company. Due to the
potential volatility of our stock price, we therefore may be the
target of securities litigation in the future. Securities
litigation could result in substantial costs and divert
managements attention and resources from our business.

Private equity
funds affiliated with the Sponsors will continue to own the
majority of our voting stock immediately after this offering,
which, if they acted together, would allow them to control
substantially all matters requiring shareholder
approval.

Upon the completion of this offering, private equity funds
affiliated with Providence Equity Partners, Goldman Sachs
Capital Partners and Leeds Equity Partners will beneficially own
approximately 29.2%, 34.4% and 7.1%, respectively, of our
outstanding common stock (or 28.6%, 33.7% and 7.0%,
respectively, if the underwriters fully exercise their option to
purchase additional shares). In

addition, pursuant to the Shareholders Agreement that certain
of our shareholders, including the Sponsors, will enter into
upon completion of this offering, we expect that five of our ten
directors immediately following this offering will be
representatives of the private equity funds affiliated with the
Sponsors. Certain private equity funds affiliated with
Providence Equity Partners and certain private equity funds
affiliated with Goldman Sachs Capital Partners each will have
the right to appoint two directors if such Sponsor owns 10% or
more of our common stock and each of the Sponsors will have the
right to appoint one director if such Sponsor owns 2% or more of
our common stock. See Certain Relationships and Related
Transactions  Shareholders Agreement. As a
result, these private equity funds, should they vote their
respective shares in concert with each other, could have
significant influence over our decision to enter into any
corporate transaction and may have the ability to prevent any
transaction that requires the approval of shareholders,
regardless of whether or not other shareholders believe that
such transaction is in their own best interests. Such
concentration of voting power could have the effect of delaying,
deterring or preventing a change of control or other business
combination that might otherwise be beneficial to our
shareholders.

Additionally, the Sponsors are in the business of making
investments in companies and may from time to time acquire and
hold interests in businesses that compete directly or indirectly
with us. One or more of the Sponsors may also pursue acquisition
opportunities that may be complementary to our business and, as
a result, those acquisition opportunities may not be available
to us. As long as private equity funds affiliated with the
Sponsors collectively continue to own, directly or indirectly, a
significant amount of the outstanding shares of our common
stock, the Sponsors will collectively continue to be able to
strongly influence or effectively control our decisions.

We will
qualify for and avail ourself of exemptions from certain
corporate governance requirements for companies whose stock is
quoted on The NASDAQ Stock Market LLC (Nasdaq) that
provide protection to shareholders of other
companies.

After the completion of this offering, the private equity funds
affiliated with the Sponsors collectively will own more than 50%
of the total voting power of our common stock, and we intend to
utilize certain controlled company exemptions under
Nasdaqs corporate governance listing standards that free
us from the obligation to comply with certain Nasdaq corporate
governance requirements, including the requirements:



that a majority of our Board of Directors consists of
independent directors;



that the compensation of executive officers be determined, or
recommended to our Board of Directors for determination, either
by (a) a majority of the independent directors or
(b) a compensation committee comprised solely of
independent directors; and



that director nominees be selected, or recommended for our Board
of Directors selection, either by (a) a majority of
the independent directors or (b) a nominations committee
comprised solely of independent directors.

As a result of our use of these exemptions, you will not have
the same protection afforded to shareholders of companies that
are subject to all of Nasdaqs corporate governance
requirements. In the event that we cease to be eligible to
utilize controlled company exemptions under
Nasdaqs corporate governance listing standards, we will
have a transitionary period during which we must achieve
compliance with the requirements described above.

Your
percentage ownership in EDMC may be diluted by future issuances
of capital stock, which could reduce your influence over matters
on which shareholders vote.

Following the completion of this offering, our Board of
Directors has the authority, without action or vote of our
shareholders, to issue all or any part of our authorized but
unissued shares of common stock, including shares issuable upon
the exercise of options, shares that may be issued to satisfy
our payment obligations under our LTIC Plan or shares of our
authorized but unissued preferred stock.

Issuances of common stock or voting preferred stock would reduce
your influence over matters on which our shareholders vote, and,
in the case of issuances of preferred stock, likely would result
in your interest in us being subject to the prior rights of
holders of that preferred stock.

The sale of a
substantial number of shares of our common stock after this
offering may cause the market price of shares of our common
stock to decline.

Sales of our common stock by existing investors may begin
shortly after the completion of this offering. Sales of a
substantial number of shares of our common stock in the public
market following this offering, or the perception that these
sales could occur, could cause the market price of our common
stock to decline. The shares of our common stock outstanding
prior to this offering will be eligible for sale in the public
market at various times in the future. We, all of our directors
and executive officers, the Sponsors and other parties to our
existing shareholders agreement, representing a majority of our
outstanding shares of common stock immediately prior to this
offering, agreed with the underwriters, subject to certain
exceptions, not to dispose of or hedge any of their common stock
or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this
prospectus (or such longer period as described in Shares
Eligible For Future Sale  Lock-Up Agreements),
except with the prior written consent of the representatives as
described in the section of this prospectus entitled
Underwriting. Upon expiration of this
lock-up
period and assuming no exercise of outstanding stock options in
the interim, up to approximately 26.6 million additional
shares of common stock may be eligible for sale in the public
market without restriction, subject to any applicable
restrictions under our Shareholders Agreement, and up to
approximately 100.3 million shares of common stock held by
affiliates may become eligible for sale, subject to the
restrictions under Rule 144 of the Securities Act of 1933.
In addition, the private equity funds affiliated with Providence
Equity Partners and Goldman Sachs Capital Partners, which will
collectively beneficially own approximately
88.9 million shares of common stock upon completion of
this offering, have the right to cause us, at our expense, to
use our reasonable best efforts to register such shares held by
the private equity funds for public resale, subject to certain
limitations. For more information, see Shares Eligible for
Future Sale, Certain Relationships and Related
Transactions  Shareholders Agreement and
Certain Relationships and Related Transactions 
Registration Rights Agreement.

You will incur
immediate and substantial dilution in the net tangible book
value of your shares.

If you purchase shares in this offering, the value of your
shares based on our actual book value immediately will be less
than the price you paid. This reduction in the value of your
equity is known as dilution. This dilution occurs in large part
because our earlier investors paid substantially less than the
initial public offering price when they purchased their shares
of our common stock. Based upon the issuance and sale of
20,000,000 shares of our common stock by us in this
offering at the initial public offering price of $18.00 per
share, you will incur immediate dilution of $25.50 in the net
tangible book value per share. Investors will incur additional
dilution in the future upon the exercise of outstanding stock
options. For more information, see Dilution.

We will incur
increased costs as a result of being a public company, and the
requirements of being a public company may divert management
attention from our business and adversely affect our financial
results.

As a public company, we will be subject to a number of
additional requirements, including the reporting requirements of
the Securities Exchange Act of 1934, as amended, the
Sarbanes-Oxley Act of 2002 and the listing standards of Nasdaq.
These requirements will cause us to incur increased costs and
might place a strain on our systems and resources. The
Securities Exchange Act of 1934 requires, among other things,
that we file annual, quarterly and current reports with respect
to our business and financial condition. The Sarbanes-Oxley Act
requires, among other things, that we

maintain effective disclosure controls and procedures and
internal control over financial reporting. In order to maintain
and improve the effectiveness of our disclosure controls and
procedures and internal control over financial reporting,
significant resources and management oversight will be required.
As a result, our managements attention might be diverted
from other business concerns, which could have a material
adverse effect on our business, results of operations and
financial condition. Furthermore, we might not be able to retain
our independent directors or attract new independent directors
for our committees.

Provisions in
our charter documents and the Pennsylvania Business Corporation
Law could make it more difficult for a third party to acquire us
and could discourage a takeover and adversely affect existing
shareholders.

Provisions in our charter documents could discourage potential
acquisition proposals or make it more difficult for a third
party to acquire control of the Company, even if doing so might
be beneficial to our shareholders. Our articles of incorporation
and bylaws provide for various procedural and other requirements
that could make it more difficult for shareholders to effect
certain corporate actions. For example, our articles of
incorporation authorize our Board of Directors to issue up to
20.0 million shares of preferred stock and to determine the
powers, preferences, privileges, rights, including voting
rights, qualifications, limitations and restrictions on those
shares, without any further vote or action by our shareholders.
The rights of the holders of our common stock are subject to,
and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. Additional
provisions that could make it more difficult for shareholders to
effect certain corporate actions include the following:



our articles of incorporation prohibit cumulative voting in the
election of directors;



once the private equity funds affiliated with the Sponsors and
certain of our other institutional investors collectively cease
to beneficially own 50% or more of our outstanding common stock,
our articles of incorporation and bylaws will not
(i) permit shareholder action without a meeting by consent,
except for unanimous written consent, (ii) permit
shareholders to call or to require the Board of Directors to
call a special meeting or (iii) permit shareholder removal
of directors without assigning any cause; and



our bylaws provide that shareholders seeking to nominate
candidates for election as directors or to bring business before
an annual meeting of shareholders must comply with advance
notice procedures.

Our shareholders may remove directors only for cause; provided,
that as long as our shareholders have the right to act by
partial written consent, directors may be removed from office by
partial written consent without assigning any cause. These and
other provisions of the Pennsylvania Business Corporation Law
(the PBCL) and our articles of incorporation and
bylaws may discourage acquisition proposals, make it more
difficult or expensive for a third party to acquire a majority
of our outstanding common stock or delay, prevent or deter a
merger, acquisition, tender offer or proxy contest, which may
negatively affect our stock price. See Description of
Capital Stock.

We currently
do not intend to pay dividends on our common stock and,
consequently, your only opportunity to achieve a return on your
investment is if the price of our common stock
appreciates.

We do not expect to pay dividends on shares of our common stock
in the foreseeable future. The terms of our senior secured
credit facilities or indentures limit our ability to pay cash
dividends in certain circumstances. Furthermore, if we are in
default under our credit facilities or indentures, our ability
to pay cash dividends will be limited in certain circumstances
in the absence of a waiver of that default or an amendment to
the facilities or indentures. In addition, because we are a
holding company, our ability to pay cash dividends on shares of
our common stock may be limited by restrictions on our ability
to obtain sufficient funds through dividends from our
subsidiaries, including the restrictions under our senior

secured credit facilities and indentures. Subject to these
restrictions, the payment of cash dividends in the future, if
any, will be at the discretion of our Board of Directors and
will depend upon such factors as earnings levels, capital
requirements, our overall financial condition and any other
factors deemed relevant by our Board of Directors. Consequently,
your only opportunity to achieve a return on your investment in
the Company will be if the market price of our common stock
appreciates.

We rely on
dividends, distributions and other payments, advances and
transfers of funds from our operating subsidiaries to meet our
debt service and other obligations.

We conduct all of our operations through certain of our
subsidiaries, and we currently have no significant assets other
than cash of approximately $42.0 million and the capital
stock of our respective subsidiaries. As a result, we will rely
on dividends and other payments or distributions from our
operating subsidiaries to meet any existing or future debt
service and other obligations. The ability of our operating
subsidiaries to pay dividends or to make distributions or other
payments to their parent companies will depend on their
respective operating results and may be restricted by, among
other things, the laws of their respective jurisdictions of
organization, regulatory requirements, agreements entered into
by those operating subsidiaries and the covenants of any
existing or future outstanding indebtedness that we or our
subsidiaries may occur. For example, our senior secured credit
agreement and the indentures governing the Notes contain certain
restrictions on our subsidiaries ability to pay dividends
and to make distributions.

We experience
seasonal fluctuations in our results of operations which may
result in similar fluctuations in the trading price of our
common stock.

Historically, our quarterly revenues and income have fluctuated
primarily as a result of the pattern of student enrollments at
our schools. The number of students enrolled at our schools
typically is greatest in the second quarter of our fiscal year,
when the largest number of recent high school and college
graduates typically begin post-secondary education programs.
Student vacations generally cause our student enrollments to be
at their lowest during our first fiscal quarter. Because a
significant portion of our expenses do not vary proportionately
with the fluctuations in our revenue, our results in a
particular fiscal quarter may not indicate accurately the
results we will achieve in a subsequent quarter or for the full
fiscal year. These fluctuations in our operating results may
result in corresponding volatility in the market price for our
common stock.

This prospectus contains forward-looking statements
within the meaning of the federal securities laws, which involve
risks and uncertainties. You can identify forward-looking
statements because they contain words such as
believes, expects, may,
will, should, seeks,
approximately, intends,
plans, estimates, or
anticipates or similar expressions that concern our
strategy, plans or intentions. All statements we make relating
to estimated and projected earnings, margins, costs,
expenditures, cash flows, growth rates and financial results are
forward-looking statements. In addition, we, through our senior
management, from time to time make forward-looking public
statements concerning our expected future operations and
performance and other developments. All of these forward-looking
statements are subject to risks and uncertainties that may
change at any time, and, therefore, our actual results may
differ materially from those we expected. We derive most of our
forward-looking statements from our operating budgets and
forecasts, which are based upon many detailed assumptions. While
we believe that our assumptions are reasonable, we caution that
it is very difficult to predict the impact of known factors,
and, of course, it is impossible for us to anticipate all
factors that could affect our actual results. Important factors
that could cause actual results to differ materially from our
expectations are disclosed under Risk Factors and
elsewhere in this prospectus, including, without limitation, in
conjunction with the forward-looking statements included in this
prospectus. All subsequent written and oral forward-looking
statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by the factors
discussed in this prospectus. Some of the factors that we
believe could affect our results include:



compliance with extensive federal, state and accrediting agency
regulations and requirements;



our ability to maintain eligibility to participate in
Title IV programs;



government and regulatory changes including revised
interpretations of regulatory requirements that affect the
post-secondary education industry;



regulatory and accrediting agency approval of transactions
involving a change of ownership or control or a change in our
corporate structure;



damage to our reputation or our regulatory environment caused by
actions of other for-profit institutions;



availability of private loans for our students;



our introduction of the Education Finance Loan program with a
private lender;



effects of a general economic slowdown or recession in the
United States or abroad;

increases to our administrative costs and delays to the receipt
of federal loan proceeds that we may experience if we are
required to process all or a substantial portion of our
students federal loans through the Direct Loan Program;



capacity constraints or system disruptions to our online
computer networks;

We caution you that the foregoing list of important factors may
not contain all of the material factors that are important to
you. In addition, in light of these risks and uncertainties, the
matters referred to in the forward-looking statements contained
in this prospectus may not in fact occur. We undertake no
obligation to publicly update or revise any forward-looking
statement as a result of new information, future events or
otherwise, except as otherwise required by law.

We will receive net proceeds from this offering of approximately
$338.4 million after deducting estimated underwriting
discounts. We expect to (i) contribute up to $323.9 million
of the net proceeds from this offering to our subsidiary,
Education Management LLC, to repay a portion of its
indebtedness, as described below, (ii) pay
$10.9 million of the approximately $29.5 million
termination fee under the Sponsor Management Agreement and
(iii) pay an estimated $3.6 million in offering
expenses. See Certain Relationships and Related
Transactions  Sponsor Management Agreement.

On September 21, 2009, Education Management LLC commenced a
tender offer to purchase for cash a portion of its
83/4% senior
notes due 2014, which we refer to as senior notes, and
101/4% senior
subordinated notes due 2016, which we refer to as senior
subordinated notes. It is offering to purchase an aggregate
principal amount of these notes such that the maximum aggregate
consideration for all notes purchased in the tender offer,
excluding accrued and unpaid interest, will be
$323.9 million. Education Management LLC intends to accept
for purchase notes tendered in the tender offer based on the
following priority: (1) first, the maximum aggregate
principal amount of senior subordinated notes validly tendered
on a pro rata basis that can be purchased, such that the maximum
aggregate consideration for senior subordinated notes, excluding
accrued and unpaid interest, will be $323.9 million and
(2) thereafter, the maximum aggregate principal amount of
senior notes validly tendered on a pro rata basis that can be
purchased, if any, such that the aggregate consideration paid
for all senior notes and senior subordinated notes purchased in
the tender offer, excluding accrued and unpaid interest, will be
$323.9 million. The tender offer is conditioned upon, among
other things, the completion of this offering. If any condition
of the tender offer is not satisfied, Education Management LLC
is not obligated to accept for purchase, or to pay for, any
notes tendered and may delay the acceptance for payment of any
tendered notes, in each case subject to applicable laws.

Holders of senior subordinated notes and senior notes will
receive $1,110 and $1,070, respectively, plus accrued and unpaid
interest for each $1,000 principal amount of such notes that are
validly tendered on or before 5:00 p.m., New York City
time, on October 5, 2009 and accepted for purchase in the
tender offer. Holders of senior subordinated notes and senior
notes will receive $1,080 and $1,040, respectively, plus accrued
and unpaid interest for each $1,000 principal amount of such
notes that are validly tendered after 5:00 p.m., New York
City time, on October 5, 2009 but on or before
5:00 p.m., New York City time, on October 19, 2009 and
accepted for purchase in the tender offer.

We believe that affiliates of certain of the Sponsors own in the
aggregate approximately $81 million in aggregate principal
amount of the senior subordinated notes. To the extent that an
affiliate of a Sponsor validly tenders all or any portion of its
senior subordinated notes in the tender offer and such senior
subordinated notes are accepted for purchase in the tender
offer, such affiliate indirectly will receive a portion of the
proceeds from this offering.

As of June 30, 2009, the outstanding aggregate principal
amounts of the senior notes and senior subordinated notes were
$375.0 million and $385.0 million, respectively. See
Description of Certain Indebtedness  Senior
Notes and Senior Subordinated Notes. Unless we
specifically state otherwise, the information in this prospectus
assumes that Education Management LLC will purchase in the
tender offer $151.4 million aggregate principal amount of
senior notes for $162.0 million and $145.9 million
aggregate principal amount of senior subordinated notes for
$161.9 million. However, Education Management LLC may not
be able to consummate the tender offer on the terms described
above. It may modify the terms of the tender offer, including
pricing terms or the maximum consideration to be paid for notes
that are validly tendered, or it may extend or terminate the
tender offer, at any time prior to its consummation, which may
result in it spending more or less than $323.9 million in
connection with the tender offer. If Education Management LLC
applies less than $323.9 million of net proceeds from this
offering contributed to it to repurchase notes in the tender
offer, it intends to use any remaining amounts of those net
proceeds contributed to it for general corporate purposes, which
may include the repayment, redemption or refinancing of its
indebtedness,

including indebtedness under its senior secured credit
facilities, the material terms of which are described under
Description of Certain Indebtedness  Senior
Secured Credit Facilities.

This prospectus is not an offer to purchase senior notes or
senior subordinated notes. Education Management LLCs
tender offer is made only by and pursuant to the terms of the
Offer to Purchase and the related Letter of Transmittal, each
dated as of September 21, 2009.

We intend to use the net proceeds from the sale of any shares of
our common stock pursuant to the underwriters option to
purchase additional shares for general corporate purposes, which
may include the repayment of additional debt.

Other than the termination fee described above, no fees are
payable to any of the Sponsors under the Sponsor Management
Agreement from the proceeds of this offering. Goldman,
Sachs & Co., an affiliate of one of the Sponsors, will
receive customary underwriting compensation in connection with
this offering, as described under Underwriting.

We do not expect to declare dividends on shares of our common
stock in the foreseeable future. We expect to retain our future
earnings, if any, for use in the operation and expansion of our
business. The terms of our senior secured credit facilities and
indentures limit our ability to pay cash dividends in certain
circumstances. Furthermore, if we are in default under these
credit facilities or indentures, our ability to pay cash
dividends will be limited in the absence of a waiver of that
default or an amendment to those facilities or indentures. In
addition, our ability to pay cash dividends on shares of our
common stock may be limited by restrictions on our ability to
obtain sufficient funds through dividends from our subsidiaries,
including the restrictions under our senior secured credit
facilities and indentures. For more information on our senior
secured credit facilities and indentures, see Description
of Certain Indebtedness. Subject to the foregoing, the
payment of cash dividends in the future, if any, will be at the
discretion of our Board of Directors and will depend upon such
factors as earnings levels, capital requirements, our overall
financial condition and any other factors deemed relevant by our
Board of Directors.

The following table sets forth as of June 30, 2009 on a
consolidated basis:



Our actual capitalization that gives effect to (i) the
Stock Split and (ii) the amendment and restatement of our
articles of incorporation in connection with the Stock
Split; and



Our as adjusted capitalization that gives effect to (i) the
Stock Split, (ii) the amendment and restatement of our
articles of incorporation in connection with the Stock Split,
(iii) the sale of 20,000,000 shares of common stock by
us in this offering at the initial public offering price of
$18.00 per share, (iv) the application of the net proceeds
of this offering as described under Use of Proceeds
and the use of cash on hand to pay approximately
$18.6 million of the approximately $29.5 million
termination fee under the Sponsor Management Agreement and
(v) the acceleration of a portion of the amortization on
deferred costs related to our indebtedness which will be repaid
as described under Use of Proceeds of approximately
$4.4 million.

You should read the following table in conjunction with the
information in this prospectus under the captions Selected
Consolidated Financial and Other Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and Description
of Certain Indebtedness and with the audited annual
consolidated financial statements and related notes included
elsewhere in this prospectus.

Current portion of long-term debt
consists primarily of payments due within the next
12 months on our senior secured term loan facility.

(2)

Excludes
(i) 7,812,887 shares of our common stock issuable upon
the exercise of options outstanding as of June 30, 2009, of
which options to purchase 2,062,604 shares were exercisable
as of June 30, 2009, (ii) 441,855 additional
shares of our common stock authorized by the Board of Directors
for future issuance under the 2006 Stock Option Plan, and
(iii) any shares of our common stock which may be issued to
satisfy our payment obligations under the LTIC Plan.

The following diagram sets forth our corporate structure.
Subsidiaries of Education Management LLC own all of the
operating assets of EDMC, and each subsidiary is wholly owned,
directly or indirectly, by EDMC.

(1)

The obligations under our senior secured credit facilities are
guaranteed by Education Management Holdings LLC and all of
Education Management LLCs existing direct and indirect
domestic subsidiaries, other than any subsidiary that directly
owns or operates a school or any inactive subsidiary that has
less than $100,000 of assets. The Notes are fully and
unconditionally guaranteed by all of our existing direct and
indirect domestic restricted subsidiaries, other than any
subsidiary that directly owns or operates a school or has been
formed for such purpose and has no material assets.

(2)

As of June 30, 2009, we had an aggregate of
$137.8 million in outstanding letters of credit, including
$121.1 million in outstanding letters of credit issued to
the U.S. Department of Education due to our failure to satisfy
certain regulatory financial ratios after giving effect to the
Transaction. Outstanding letters of credit reduce the
availability under our revolving credit facility. Upon
consummation of this offering, the revolving credit facility
will automatically increase to $442.5 million.

(3)

As adjusted to give effect to the sale of 20,000,000 shares
of common stock by us in this offering at the initial public
offering price of $18.00 per share and the application of the
net proceeds of this offering as described under Use of
Proceeds.

(4)

Education Management Finance Corp. has only nominal assets, does
not currently conduct any operations and was formed solely to
act as co-issuer of the Notes.

If you invest in our common stock in this offering, your
ownership interest will be diluted to the extent of the
difference between the initial public offering price per share
and the adjusted net tangible book value per share of common
stock upon the consummation of this offering.

Our net tangible book deficit as of June 30, 2009 was
approximately $1.3 billion, or approximately
$11.23 per share of common stock after giving effect to the
Stock Split. The number of shares outstanding excludes
(i) 7,812,887 shares of our common stock issuable upon
the exercise of options outstanding as of June 30, 2009, of
which options to purchase 2,062,604 shares were exercisable
as of June 30, 2009 (ii) 441,855 additional
shares of our common stock authorized by the Board of Directors
for future issuance under the 2006 Stock Option Plan and
(iii) any shares of our common stock which may be issued to
satisfy our payment obligations under the LTIC Plan. Net
tangible book deficit per share is determined by dividing our
tangible net worth, which is defined as total tangible assets
less total liabilities, by the aggregate number of shares of
common stock outstanding. Our net tangible book deficit at
June 30, 2009 excludes the book value of our intangible
assets totaling $3.1 billion and corresponding net deferred
tax liabilities of $0.2 billion.

After giving effect to the (i) sale of
20,000,000 shares of common stock by us in this offering at
the initial public offering price of $18.00 per share,
(ii) the application of the net proceeds of this offering
as described under Use of Proceeds and the use of
cash on hand to pay approximately $18.6 million of the
approximately $29.5 million termination fee under the
Sponsor Management Agreement and (iii) the acceleration of
a portion of the amortization on deferred costs related to our
indebtedness which will be repaid as described under Use
of Proceeds of approximately $4.4 million, our
adjusted net tangible book deficit as of June 30, 2009
would have been approximately $1.0 billion, or
approximately $7.50 per share after giving effect to the
Stock Split. This represents an immediate decrease in adjusted
net tangible book deficit to existing shareholders of
$3.73 per share after giving effect to the Stock Split and
an immediate dilution to new investors of $25.50 per share
after giving effect to the Stock Split. The following table
illustrates this per share dilution:

Initial public offering price per share

$

18.00

Net tangible book deficit per share as of June 30, 2009
(after giving effect to the Stock Split but excluding this
offering)

(11.23

)

Decrease in net tangible book deficit per share attributable to
new investors

3.73

Adjusted net tangible book deficit per share after this offering

(7.50

)

Dilution per share to new investors

$

25.50

If the underwriters exercise their option to purchase additional
shares in full, the adjusted net tangible book deficit per share
after this offering would be $6.99, the decrease in adjusted net
tangible book deficit per share to existing shareholders would
be $4.24 per share and the dilution per share to new
investors would be $24.99.

The following table summarizes as of June 30, 2009 the
number of shares of our common stock purchased from us, the
total consideration paid to us, and the average price per share
paid to us by our existing shareholders and to be paid by new
investors purchasing shares of our common stock in this
offering, before deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by us.

Total Consideration

Average

Shares Purchased

(in 000s)

Price Per

Number

Percentage

Amount

Percentage

Share

Existing shareholders

119,770,277

85.7

%

$

1,339,514

78.8

%

$

11.18

New investors

20,000,000

14.3

%

$

360,000

21.2

%

$

18.00

Total

139,770,277

100.0

%

$

1,699,514

100.0

%

$

12.16

The foregoing discussion and tables assume no exercise of
outstanding stock options. As of June 30, 2009, there were
options outstanding to purchase a total of 7,812,887 shares
of our common stock (as adjusted to give effect to the Stock
Split) at a weighted average exercise price of $12.35 per
share (as adjusted to give effect to the Stock Split).

To the extent that any of these stock options are exercised,
there may be further dilution to new investors. See
Capitalization, Management and
Note 11 to the notes to our audited annual consolidated
financial statements included elsewhere in this prospectus.

In addition, we may choose to raise additional capital due to
market conditions or strategic considerations even if we believe
we have sufficient funds for our current or future operating
plans. To the extent that additional capital is raised through
the sale of equity or convertible debt securities, the issuance
of such securities could result in further dilution to our
shareholders.

The following table sets forth our selected consolidated
financial and other data as of the dates and for the periods
indicated. The selected consolidated balance sheet data of
Successor as of June 30, 2008 and 2009 and the selected
consolidated statement of operations data and the selected
consolidated statement of cash flows data for the Successor
fiscal years ended June 30, 2007, 2008 and 2009 have been
derived from our audited consolidated financial statements and
related notes appearing elsewhere in this prospectus. The
selected historical consolidated statement of operations and
statement of cash flows data for the fiscal year ended
June 30, 2005 and for the periods from July 1, 2005
through May 31, 2006 and June 1, 2006 through
June 30, 2006 and the consolidated balance sheet data as of
June 30, 2005, 2006 and 2007 presented in this table have
been derived from audited consolidated financial statements not
included in this prospectus.

The selected consolidated financial and other data as of and for
any period are not necessarily indicative of the results that
may be obtained for any future date or for any future period.

The following tables also set forth selected unaudited
consolidated as adjusted balance sheet data of Successor as of
June 30, 2009, which give effect to (i) the sale of
20,000,000 shares of common stock by us in this offering at
the initial public offering price of $18.00 per share and
(ii) the application of the net proceeds of this offering
as described under Use of Proceeds. The selected
unaudited consolidated as adjusted balance sheet data are
presented for informational purposes only and do not purport to
represent what our financial position actually would have been
had these transactions occurred on the dates indicated or to
project our financial position as of any future date.

You should read the following selected financial and other data
in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes
included elsewhere in this prospectus.

Fiscal 2005 results include a
$19.5 million charge related to cumulative adjustments for
changes in lease accounting recorded in depreciation and
amortization expense in the statement of operations. This amount

was substantially offset by a
cumulative credit of $15.7 million related to the
amortization of a deferred rent credit recorded in educational
services expense in the statement of operations.

(2)

In all periods presented, the
amounts are adjusted to give effect to the 4.4737 for one stock
split that occurred on September 30, 2009.

(3)

EBITDA, a measure used by
management to measure operating performance, is defined as net
income (loss) plus interest (income) expense, net, provision for
(benefit from) income taxes and depreciation and amortization,
including amortization of intangible assets. EBITDA is not a
recognized term under GAAP and does not purport to be an
alternative to net income as a measure of operating performance
or to cash flows from operating activities as a measure of
liquidity. Additionally, EBITDA is not intended to be a measure
of free cash flows available for managements discretionary
use, as it does not consider certain cash requirements such as
interest payments, tax payments and debt service requirements.
Our obligations to make interest payments and our other debt
service obligations have increased substantially as a result of
the indebtedness incurred to finance the Transaction and to pay
related expenses in June 2006. Management believes EBITDA
is helpful in highlighting trends because EBITDA excludes the
results of decisions that are outside the control of operating
management and can differ significantly from company to company
depending on long-term strategic decisions regarding capital
structure, the tax jurisdictions in which companies operate and
capital investments. Further, until fiscal 2009, we used EBITDA
less capital expenditures as a financial target for purposes of
determining cash bonuses granted pursuant to our MICP, as
described under Management  Compensation
Discussion and Analysis  Cash Bonuses. In
addition, management believes that EBITDA provides more
comparability between our historical results and results that
reflect purchase accounting and the new capital structure.
Management compensates for the limitations of using non-GAAP
financial measures by using them to supplement GAAP results to
provide a more complete understanding of the factors and trends
affecting the business than GAAP results alone. Because not all
companies use identical calculations, these presentations of
EBITDA may not be comparable to other similarly titled measures
of other companies. EBITDA is calculated as follows:

Predecessor

Successor

Period

Period

from

from

July 1,

June 1,

Year Ended

2005 to

2006 to

June 30,

May 31,

June 30,

Year Ended June 30,

2005

2006

2006

2007

2008

2009

(In millions)

Net income (loss)

$

101.6

$

100.4

$

(19.7

)

$

32.4

$

66.0

$

104.4

Interest (income) expense, net

(0.2

)

(5.3

)

14.1

168.3

156.3

153.3

Provision for (benefit from) income taxes

67.2

73.6

(12.4

)

27.2

41.2

61.1

Depreciation and
amortization (a)

84.1

62.9

7.4

90.6

100.3

112.3

EBITDA (b)

$

252.7

$

231.6

$

(10.6

)

$

318.5

$

363.8

$

431.1

(a)

Depreciation and amortization
includes non-cash charges related to property, equipment and
intangible asset impairments of $4.2 million in fiscal 2005
and $5.5 million in fiscal 2008. Fiscal 2005 also includes
a $19.5 million charge related to cumulative adjustments
for changes in lease accounting.

(b)

EBITDA, as presented above, is
different from the Adjusted EBITDA calculated for the purpose of
determining compliance with our senior secured credit agreement
and the indentures governing our Notes. For an explanation of
our Adjusted EBITDA, see Management Discussion and
Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources.

(4)

The Art Institute of Toronto
announced in June 2007 that it will no longer accept new
students and that it will close after all current students
complete their respective programs. Prior to announcing this
closing, approximately 250 students attended The Art Institute
of Toronto.

(5)

The consolidated as adjusted
balance sheet data as of June 30, 2009 give effect to:



the sale of 20,000,000 shares of common stock by us in this
offering at the initial public offering price of $18.00 per
share;



the application of the net proceeds of this offering as
described under Use of Proceeds and the use of cash
on hand to pay approximately $18.6 million of the approximately
$29.5 million termination fee under the Sponsor Management
Agreement; and



the acceleration of a portion of the amortization on deferred
costs related to our indebtedness which will be repaid as
described under Use of Proceeds of approximately
$4.4 million.

We are among the largest providers of post-secondary education
in North America, with approximately 110,800 active
students as of October 2008. We offer academic programs to our
students through campus-based and online instruction, or through
a combination of both. We are committed to offering quality
academic programs and continuously strive to improve the
learning experience for our students. We target a large and
diverse market as our educational institutions offer students
the opportunity to earn undergraduate and graduate degrees,
including doctoral degrees, and certain specialized non-degree
diplomas in a broad range of disciplines. These disciplines
include design, media arts, health sciences, psychology and
behavioral sciences, culinary, fashion, business, legal,
education and information technology. Each of our schools
located in the United States is recognized by a national or
regional accreditation agency and by the U.S. Department of
Education, enabling students to access federal student loans,
grants and other forms of public and private financial aid. Our
academic programs are designed with an emphasis on applied
content and are taught primarily by faculty members who, in
addition to having appropriate academic credentials, offer
practical and relevant professional experience in their
respective fields. Our net revenues for fiscal 2009 were
$2,011.5 million.

On June 1, 2006, we were acquired by a consortium of
private investors led by the Sponsors. The acquisition was
accomplished through the merger of an acquisition company into
EDMC, with EDMC surviving the Transaction. Although we continued
as the same legal entity, we contributed substantially all of
our assets and liabilities to Education Management LLC, an
indirect wholly-owned subsidiary, in connection with the
Transaction.

Since the Transaction in June 2006, we have undertaken multiple
initiatives to increase our penetration of addressable markets
in order to enable us to accelerate our growth and expand our
market position. We have opened 20 new locations, acquired
two schools, developed 36 new academic programs and introduced
over 600 new or existing academic programs to locations that had
not previously offered such programs. The compound annual
enrollment growth rate at our schools was 19.6% between July
2006 and July 2009. During the same time period, the compound
annual enrollment growth rate for schools owned or operated for
one year or more was 18.2%. We have made significant capital
investments in technology and human resources, particularly in
marketing and admissions, designed to facilitate future
enrollment growth while enhancing the effectiveness of our
marketing efforts. We have also upgraded our infrastructure,
student interfaces and student support systems to enhance the
student experience, while providing greater operational
transparency. We have made considerable investments in our
online education platform, which has resulted in strong
enrollment growth. The number of students enrolled in fully
online academic programs has grown more than five-fold since
July 2006 to approximately 26,200 students in July 2009. We
expect to continue to pursue a disciplined approach to opening
new school locations in attractive target markets.

The largest component of our net revenues is tuition collected
from our students, which is presented in our statements of
operations after deducting refunds, scholarships and other
adjustments. Net revenues consist of tuition and fees, student
housing fees, bookstore sales, restaurant sales in connection
with culinary programs, workshop fees, finance charges related
to credit extended to students and sales of related study
materials. Net revenues are reduced for student refunds and
scholarships. We recognize revenue on a pro rata basis over the
term of instruction or occupancy or when cash is received in the
case of certain point-of-sale revenues. The amount of tuition
revenue received from students varies based on the average
tuition charge per credit hour, average credit hours taken per
student, type of program, specific curriculum and average
student population. Bookstore and housing revenues are largely a
function of the average student population.

The two main drivers of our net revenues are average student
population and tuition rates. Factors affecting our average
student population include the number of continuing students
attending our schools at the beginning of a period and the
number of new students entering our schools during such period.
We believe that the size of our student population at our
campuses is influenced by a number of factors. These include the
number of individuals seeking post-secondary education, the
attractiveness of our program offerings, the quality of the
student experience, the effectiveness of our marketing efforts,
the persistence of our students, the length of the education
programs and our overall educational reputation. We seek to grow
our average student population by offering additional programs
at existing schools and by establishing new school locations,
whether through new facility
start-up or
acquisition. Historically, we have been able to pass along the
rising cost of providing quality education through increases in
tuition. Average tuition rates increased by approximately 6% in
fiscal 2009 and 5% in fiscal 2008.

We believe that several factors influence the number of
individuals seeking post-secondary education programs. According
to the U.S. Department of Education, enrollment in
degree-granting, post-secondary institutions is projected to
grow 11.7% over the ten-year period ending in the fall of 2017
to approximately 20.1 million students. This growth
compares with a 24.0% increase reported in the prior ten-year
period ended 2007, when enrollment increased from
14.5 million students in 1997 to 18.0 million students
in 2007. Enrollment growth in the ten-year period ended 2007 was
accompanied by a 23.7% increase in high school graduates from
2.7 million students in 1997 to 3.3 million students
in 2007. The U.S. Department of Education, while
projecting that the number of high school graduates will remain
at approximately 3.3 million students per year through
2017, estimates that enrollment in degree-granting,
post-secondary institutions by students
18-24 years
of age will increase 8.3% from 10.8 million students in
2007 to 11.7 million students in 2017. Moreover, the
U.S. Department of Education projects even faster growth
rates for students 25 years of age and older, up 17.0% from
7.0 million students in 2007 to 8.2 million students
in 2017.

In addition to the number of high school graduates available to
matriculate into post-secondary education, we believe that
several other factors influence demand for post-secondary
education. The wage gap between college degree and non-college
degree workers provides an important economic incentive to
pursue post-secondary education. According to the
U.S. Census Bureau, in 2008, the median weekly earnings for
workers 25 years of age and older with a Bachelors
degree was approximately 66% higher than for high school
graduates of the same age with no college experience and the
average unemployment rate in 2008 for persons aged 25 and older
with a Bachelors degree was half that of those without a
college degree. A greater number of jobs also require
post-secondary education. The U.S. Department of
Labor  Bureau of Labor Statistics projects that the
growth rate for total job openings from 2006 to 2016 for
occupations that require post-secondary education is over 15%,
nearly double the growth rate for occupations that do not
require post-secondary education.

A majority of our students rely on funds received under various
government-sponsored student financial aid programs, especially
Title IV programs, to pay a substantial portion of their
tuition and other education-related expenses. Because of the
dependence on government-sponsored programs, we participate in
industry groups and monitor the impact of newly proposed
legislation on our business. Some of our students also rely upon
funds received from private lenders to pay a portion of their
tuition and related expenses. Net revenues derived indirectly
from private loans to students at our schools represented
approximately 13.1% of our net revenues in fiscal 2009, as
compared to approximately 22.3% in fiscal 2008. The number of
students who obtain a private loan has decreased substantially
due to increases in the availability of federal student aid and
decreases in the financial options available to our students as
a result of tightened credit standards and other factors. In
response, we implemented the Education Finance Loan program in
August 2008 to enable students who have exhausted all available
government-sponsored or other aid and have been denied a private
loan to borrow a portion of their tuition and other educational
expenses at our schools if they or a co-borrower meet certain
eligibility and underwriting criteria. During fiscal 2009,
revenues derived

Our quarterly net revenues and income fluctuate primarily as a
result of the pattern of student enrollments. The seasonality of
our business has decreased over the last several years due to an
increased percentage of students enrolling in online programs,
which generally experience less seasonal fluctuations than
campus-based programs. Our first fiscal quarter is typically our
lowest revenue recognition quarter due to student vacations.

Educational services expenses, the largest component of our
operating expenses, consist primarily of costs related to the
development, delivery and administration of our education
programs. Major cost components are faculty compensation,
salaries of administrative and student services staff, costs of
educational materials, facility occupancy costs, information
systems costs, bad debt expense and private loan fees. We
anticipate that these expenses as a percentage of net revenues
will decrease over time due to continued leverage on our fixed
cost base through the introduction of new programs at our
existing schools and continued growth in the number of students
taking classes online.

The second largest expense line item, general and administrative
expenses, consists of marketing and student admissions expenses
and certain central staff departmental costs such as executive
management, finance and accounting, legal, corporate development
and other departments that do not provide direct services to our
students. We have centralized many of these services to gain
consistency in management reporting, efficiency in
administrative effort and cost control. With regard to the
marketing component of our expenses, we have seen a change in
the way we market to and attract inquiries from prospective
students as the Internet has become an increasingly important
way of reaching students. However, Internet inquiries, which
generally cost less than leads from traditional media sources
such as television and print, convert to applications at a lower
rate than inquiries from traditional media sources.

Certain of our historic costs and expenses will change in the
future as a result of the completion of this offering. Since the
Transaction, we have paid the Sponsors an annual management fee
of $5.0 million and reimbursed the Sponsors for
out-of-pocket expenses of $0.5 million incurred by them or
their affiliates in connection with travel, transportation and
similar expenses related to the provision of management
services. Upon completion of this offering, we will pay to the
Sponsors a management termination fee of approximately
$29.5 million, and our obligation to pay the annual
management fee will cease.

We have not recognized compensation expense under
SFAS No. 123R, Share-Based Payment, due to
restrictions on the 2006 Stock Option Plan participants
ability to receive value on their stock option grants until
certain performance conditions are achieved. At June 30,
2009, we had $35.7 million in unrecognized
SFAS No. 123R expenses, net of expected forfeitures,
and the intrinsic value of the outstanding vested and unvested
options was $13.0 million and $31.6 million,
respectively, based on the initial public offering price of
$18.00 per share. Upon completion of this offering, we expect to
recognize $14.9 million of non-cash compensation expense
related to our stock options.

Option grants since the Transaction through August 31, 2009
were as follows:

Estimated

No. of Options

Fair Value per

Time-Vested
Option Grants

Granted
(000s)(1)

Exercise
Price(2)

Share at Grant
Date(2)

August 2006

1,071

$

11.18

$

11.18

December 2006

1,386

$

11.18

$

11.18

March 2007

1,406

$

12.29

$

12.29

June 2007

212

$

13.41

$

13.41

August 2007

43

$

16.76

$

16.76

May 2008

126

$

21.46

$

21.46

July 2008

63

$

21.46

$

21.46

October 2008

75

$

21.46

$

21.46

Performance-Vested Option
Grants

August 2006

1,071

$

11.18

$

11.18

December 2006

1,386

$

11.18

$

11.18

March 2007

1,294

$

12.29

$

12.29

June 2007

212

$

13.41

$

13.41

August 2007

43

$

16.76

$

16.76

May 2008

126

$

21.46

$

21.46

July 2008

63

$

21.46

$

21.46

October 2008

75

$

21.46

$

21.46

(1)

Includes options that have been forfeited through
August 31, 2009 due to the termination of the
grantees employment. The number of options granted has
been adjusted to give effect to the Stock Split.

(2)

The Board of Directors established the exercise price of option
grants based on its determination of the fair market value of a
share of common stock on the day of grant. The exercise price
and estimated fair value per share at the date of grant were
supported by a contemporaneous valuation or private transaction
in our stock. Given the relative proximities of the March and
June 2007 option grant dates to the end of their respective
fiscal quarters, the fair value of common stock assumption used
in determining the options fair values, which will be used
to recognize compensation expense, was based on the fair value
of the common stock at the end of the respective fiscal
quarters. Exercise prices and estimated fair values per share at
the dates of grant have been adjusted to give effect to the
Stock Split.

We have also adopted the LTIC Plan pursuant to which we have
granted unit awards to non-executive employees. Under the terms
of the LTIC Plan, a bonus pool is created if Providence Equity
Partners and Goldman Sachs Capital Partners (together, the
Principal Shareholders) satisfy certain required
returns on their initial investment in our stock when a
realization event occurs, which is defined in the LTIC Plan as
the time when the Principal Shareholders (i) cease to own
in the aggregate at least 30% of our outstanding voting
securities, and (ii) have, in the aggregate, disposed of at
least 70% of their shares. The size of the bonus pool, if any,
depends on the returns to the Principal Shareholders when they
sell shares of our stock. We will recognize compensation expense
for units issued under the LTIC Plan pursuant to
SFAS No. 123R.

Also upon completion of this offering, we expect to use
$323.9 million of the net proceeds to repay a portion of
our indebtedness as described under Use of Proceeds.
As a result, we will accelerate a portion of the amortization on
the related deferred debt costs of approximately
$4.4 million.

For the fiscal years indicated, the following table presents the
percentage relationship of our statement of operations items to
net revenues.

Year Ended

June 30,

2007

2008

2009

Net revenues

100.0

%

100.0

%

100.0

%

Costs and expenses:

Educational services

53.5

%

53.5

%

53.1

%

General and administrative

23.1

%

24.9

%

25.5

%

Depreciation and amortization

6.7

%

6.0

%

5.6

%

Total costs and expenses

83.3

%

84.4

%

84.2

%

Income before interest and income taxes

16.7

%

15.6

%

15.8

%

Interest expense, net

12.3

%

9.3

%

7.6

%

Income before income taxes

4.4

%

6.3

%

8.2

%

Provision for income taxes

2.0

%

2.4

%

3.0

%

Net income

2.4

%

3.9

%

5.2

%

Year Ended
June 30, 2009 (Fiscal 2009) Compared with the Year
Ended June 30, 2008 (Fiscal 2008)

All basis point changes are presented as a percentage of net
revenues in each year of comparison.

Net
revenues

Net revenues for fiscal 2009 increased 19.4% to
$2,011.5 million, compared to $1,684.2 million in
fiscal 2008. Average student enrollment increased 17.4% from
fiscal 2008 to fiscal 2009 due primarily to the opening of new
school locations, the growth in our fully online programs and
the introduction of new academic programs. In addition, tuition
rates increased approximately 6% in fiscal 2009 compared to
fiscal 2008. These factors were partially offset by a lower
average credit load taken by students. The decrease in credit
load was primarily the result of growth in the number of
students enrolled in fully online programs, in which students
typically take a lesser credit load. Average student enrollment
for fiscal 2009 was approximately 107,700 students, an increase
of 15,800 students compared to fiscal 2008. None of this
growth was from the acquisitions of educational institutions.
Tuition revenue generally varies based on the average tuition
charge per credit hour, average credits per student and the
average student population. We derived approximately 91.7% and
91.1% of our net revenues from tuition and fees paid by, or on
behalf of, our students in fiscal 2009 and fiscal 2008,
respectively.

Bookstore and housing revenue is largely a function of the
average student population. Net housing revenues increased by
$4.5 million, or 5.9%, to $81.2 million in fiscal 2009
compared to fiscal 2008. Revenues from bookstore sales, which
include supplies and other items, grew to $68.9 million in
fiscal 2009 compared to $57.2 million in fiscal 2008, an
increase of 20.4%.

Educational
services expenses

Educational services expenses increased by $166.4 million,
or 18.5%, to $1,067.7 million in fiscal 2009 due primarily
to the incremental costs incurred to support higher student
enrollment. As a percentage of net revenues, educational
services expenses decreased by 43 basis points. Salaries
and benefits decreased by 73 basis points from the prior
year primarily due to operating leverage at existing onground
campuses partially offset by an increase in these costs for our
fully online programs. Rent expense associated with schools was
$148.3 million in fiscal 2009 and $131.3 million in
the prior fiscal year, representing a decrease of 42 basis
points. Additionally, costs related to insurance, employee
relations and travel and training decreased 38 basis points
in fiscal 2009 compared to fiscal 2008. These decreases were
partially offset by an increase in bad debt expense as a
percentage of

net revenues from 2.5% in the prior fiscal year to 3.6% in the
current year, or an increase of 110 basis points. The
increase in bad debt expense was primarily due to larger
receivable balances, higher delinquency rates and an increase in
the proportion of our receivables from
out-of-school
students, which are reserved for at a higher rate than in-school
students. In addition, allowances recorded in connection with
our Education Finance Loan program and worsening economic
conditions also had a negative impact on bad debt expense. We
also experienced a 25 basis point increase from the prior
year in fees paid to private lenders to originate loans obtained
by our students. The remaining net decrease of 25 basis points
in the current fiscal year was driven by other costs, none of
which were individually significant.

General and
administrative expenses

General and administrative expenses were $512.7 million in
fiscal 2009, an increase of 22.3% from fiscal 2008. As a
percentage of net revenues, general and administrative expenses
increased 60 basis points compared with the prior fiscal
year, primarily due to an increase in personnel costs of
119 basis points from continued investment in marketing and
admissions representatives. Advertising costs also increased by
13 basis points against the prior year, due primarily to
marketing of fully online programs representing a greater
percentage of our total costs. Corporate costs, such as
consulting, legal, and audit, along with operating leverage on
other costs, resulted in a 72 basis point decrease from the
prior year.

Depreciation and
amortization expense

Depreciation and amortization expense on long-lived assets was
$112.3 million for fiscal 2009, an increase of 12.0% from
$100.3 million in fiscal 2008. As a percentage of net
revenues, depreciation and amortization expense decreased by
37 basis points compared to the prior year, due primarily
to a non-recurring $5.5 million impairment charge recorded
at one of our schools in the prior year.

Interest expense,
net

Net interest expense was $153.3 million in fiscal 2009, a
decrease of $3.0 million from the prior fiscal year. The
decrease in net interest expense is primarily related to a
reduction in the average interest rate of the term loan during
the current fiscal year, partially offset by interest incurred
on $180.0 million outstanding on our revolving credit
facility beginning in September 2008. We drew down on our
revolving credit facility as a precautionary measure due to the
state of the capital markets. We repaid $80.0 million of
the amount outstanding on June 26, 2009 and the remaining
$100.0 million on July 1, 2009. We typically draw
against the revolving credit facility at the end of each fiscal
year for regulatory purposes.

Provision for
income taxes

Income tax expense for fiscal 2009 was $61.1 million as
compared to $41.2 million in fiscal 2008. Our effective tax
rate was 36.9% in fiscal 2009 versus 38.4% in fiscal 2008. The
decrease in the effective tax rate for fiscal 2009 as compared
to the prior fiscal year was primarily due to a decrease in the
state tax provision as a result of restructuring plans
implemented during fiscal years 2007 and 2008.

Year Ended
June 30, 2008 (Fiscal 2008) Compared with the Year
Ended June 30, 2007 (Fiscal 2007)

All basis point changes are presented as a percentage of net
revenues in each year of comparison.

Net
revenues

Net revenues for fiscal 2008 increased 23.5% to
$1,684.2 million, compared to $1,363.7 million in
fiscal 2007, primarily resulting from a 19.1% increase in
average student enrollment, and an approximate 5% increase in
tuition rates. These factors are slightly offset by a lower
average credit load taken by students. Average student
enrollment for fiscal 2008 increased to approximately 91,900
students, less than 1.0% of which was from the acquisitions of
educational institutions, compared to approximately 77,200
students in fiscal 2007. The decrease in credit load was
primarily the result of growth in the number of students
enrolled in fully online programs, in which students typically
take a lesser credit load. Tuition revenue generally varies
based on the average tuition charge per credit hour, average
credits per student and the average student population. We
derived approximately 91% of our net revenues from tuition and
fees paid by, or on behalf of, our students in both the 2008 and
2007 periods.

Bookstore and housing revenue is largely a function of the
average student population. Net housing revenues increased to
$76.7 million in fiscal 2008 compared to $59.8 million
in fiscal 2007, an increase of 28.3%. Revenues from bookstore
sales, which include supplies and other items, grew to
$57.2 million in fiscal 2008 compared to $47.3 million
in fiscal 2007.

Educational
services expenses

Educational services expenses increased by $171.4 million,
or 23.5%, to $901.3 million in fiscal 2008 from
$729.9 million in fiscal 2007, due primarily to the
incremental costs incurred to support higher student enrollment.
Educational services expenses decreased by one basis point as a
percentage of net revenues. We experienced a reduction in
personnel and facility expenses, excluding rent, of
64 basis points in fiscal 2008 despite continued investment
in new campuses and online programs. These decreases were
partially offset by an increase in bad debt expense of 46 basis
points, due to an increase in the proportion of our receivables
from out-of-school students, which are reserved for at a higher
rate than in-school students. As a percentage of net revenues,
bad debt expense represented 2.5% in fiscal 2008 as compared to
2.0% in fiscal 2007. Rent expense associated with campuses,
which increased as a percentage of net revenues by nine basis
points, was $131.3 million in fiscal 2008 and
$105.0 million in fiscal 2007. The remaining net increase
of eight basis points in fiscal 2008 was driven by other costs,
none of which were individually significant.

General and
administrative expenses

General and administrative expenses were $419.1 million for
fiscal 2008, an increase of 32.9% from $315.3 million in
fiscal 2007. As a percentage of net revenues, general and
administrative expenses increased 176 basis points compared
with fiscal 2007. Personnel costs increased 91 basis points
in fiscal 2008 primarily as a result of continued investments in
marketing and admissions. In addition, higher investment in
advertising in our fully online programs and at our new campuses
drove an increase of 104 basis points in fiscal 2008
compared to fiscal 2007. These increases as a percentage of net
revenues were partially offset by a decrease in consulting and
other professional services expenses of 18 basis points
compared to the prior fiscal year. The remaining net decrease of
one basis point in fiscal 2008 was driven by other costs, none
of which were individually significant.

Depreciation and
amortization expense

Depreciation and amortization expense on long-lived assets was
$100.3 million for fiscal 2008, an increase of 10.7% from
$90.6 million in fiscal 2007. Due to the fixed nature of
these expenses in relation to net revenues, we experienced a
reduction in depreciation and amortization expense of

69 basis points as a percentage of net revenues, despite
taking a $5.5 million impairment charge at one of our
schools during fiscal 2008.

Interest expense,
net

Net interest expense was $156.3 million in fiscal 2008, a
decrease of $12.0 million from fiscal 2007. The decrease in
net interest expense is primarily related to the decrease in the
average interest rate of the term loan during fiscal 2008.

Provision for
income taxes

Income tax expense for fiscal 2008 was $41.2 million as
compared to $27.2 million in fiscal 2007. Our effective tax
rate was 38.4% in fiscal 2008 as compared to 45.7% in fiscal
2007. The decrease in the effective tax rate for fiscal 2008 as
compared to fiscal 2007 was primarily due to the impact of
valuation allowances established against certain state deferred
tax assets as a result of an internal restructuring in fiscal
2007, a decrease in the state provision and a decrease in state
deferred taxes.

Liquidity and
Funds of Capital Resources

We finance our operating activities primarily from cash
generated from operations, and our primary source of cash is
tuition collected from our students. We believe that cash flow
from operations, supplemented from time to time with borrowings
under our $388.5 million revolving credit facility, will
provide adequate funds for ongoing operations, planned expansion
to new locations, planned capital expenditures and debt service
as well as acquisitions during the next twelve months. Upon
consummation of this offering, the revolving credit facility
will automatically increase to $442.5 million.

Net working capital is calculated as total current assets less
total current liabilities. Advance payments and amounts
outstanding under our revolving credit facility do not
contribute to any changes in net working capital as these
liabilities are directly offset in current assets. We had
working capital of $73.9 million at June 30, 2009,
which compares favorably to $0.1 million of net working
capital at June 30, 2008. The change in working capital is
primarily the result of a $38.4 million increase in net
income in fiscal 2009 compared to fiscal 2008, which
significantly improved our cash position at June 30, 2009
compared to June 30, 2008.

Operating cash
flows

Cash provided by operating activities for the fiscal year ended
June 30, 2009 was $293.4 million, an increase of
$140.7 million, or 92.1%, compared to the year ended
June 30, 2008. Increased operating cash flows in the
current year were primarily related to increased net income,
additional cash collected due to the timing of the number of
academic starts during the fiscal year and lower cash interest
payments.

Days sales outstanding (DSO) in receivables was
23.5 days at June 30, 2009 compared to 21.1 days
at June 30, 2008. We calculate DSO by dividing net student
and other receivables at period end by average daily net
revenues for the most recently completed quarter. Net accounts
receivable can be affected significantly by the changes in the
start dates of academic terms from reporting period to reporting
period. There were no significant changes to the start dates of
academic terms in session as compared to the prior year. DSO
increased slightly in the current year due to increased
receivable balances, which were the result of deteriorating
economic conditions and limitations on the availability of
private loans to our students.

The level of accounts receivable reaches a peak immediately
after the billing of tuition and fees at the beginning of each
academic period. Collection of these receivables is heaviest at
the start of each academic period. Additionally, federal
financial aid proceeds for continuing students can be received
up to ten days prior to the start of an academic quarter, which
can result in fluctuations in quarterly cash receipts due to the
timing of the start of academic periods.

In an effort to provide our students with financing for the cost
of tuition, we have established relationships with alternative
or private loan providers. Private loans help bridge the funding
gap created by tuition rates that have risen more quickly than
federally-guaranteed student loans. In addition, we introduced
the Education Finance Loan program in August 2008, which enables
students who have exhausted all available government-sponsored
or other aid and have been denied a private loan to borrow a
portion of their tuition and other educational expenses at our
schools if they or a co-borrower meet certain eligibility and
underwriting criteria.

We have accrued a total of $22.6 million as of
June 30, 2009 for uncertain tax positions under
FIN 48, excluding interest and the indirect benefits
associated with state income taxes. We may have future cash
payments relating to the amount accrued if we are ultimately
unsuccessful in defending these uncertain tax positions.
However, we cannot reasonably predict at this time the future
period in which these payments may occur, if at all.

Investing cash
flows

Capital expenditures were $150.7 million, or 7.5% of net
revenues, for the year ended June 30, 2009, compared to
$150.9 million, or 9.0% of net revenues, for the same
period a year ago. We expect capital expenditures in fiscal 2010
to be between 6% and 8% of net revenues. During fiscal 2009, we
continued to invest both in new facilities and in the expansion
of existing facilities. Reimbursements for tenant improvements
represent cash received from lessors based on the terms of lease
agreements to be used for leasehold improvements. We lease most
of our facilities under operating lease agreements. We
anticipate that future commitments on existing leases will be
satisfied from cash provided from operating activities. We also
expect to extend the terms of leases that will expire in the
near future or enter into similar long-term commitments for
comparable space.

Financing cash
flows

Our $388.5 million revolving credit facility is available
to draw upon in order to satisfy certain year-end regulatory
financial ratios, fund working capital needs that may result
from the seasonal pattern of cash receipts that occur throughout
the year and finance acquisitions. In September 2008, we
borrowed $180.0 million under the revolving credit facility
as a precautionary measure due to the state of the capital
markets, which remained outstanding until we repaid
$80.0 million on June 26, 2009. On July 1, 2009,
we repaid the remaining outstanding balance of
$100.0 million, which existed in order to satisfy year-end
regulatory financial ratios, under the revolving credit facility
from cash on hand at June 30, 2009. In August 2009, we
signed an agreement to increase capacity on our revolving credit
facility from $322.5 million to $388.5 million and to
add two letter of credit issuing banks. The addition of issuing
banks increased amounts available for letters of credit from
$175.0 million to $375.0 million. The agreement also
outlines terms under which the revolving credit facility could
be increased by up to another $54.0 million once we
complete a qualifying initial public offering under the terms of
the senior credit facility. Upon consummation of this offering,
the revolving credit facility will automatically increase to
$442.5 million.

At June 30, 2009, we had outstanding letters of credit
issued to the U.S. Department of Education of approximately
$121.1 million, including a $120.5 million letter of
credit due to our failure to satisfy certain regulatory
financial ratios after giving effect to the Transaction.
Outstanding letters of credit reduce our availability to borrow
funds under the revolving credit facility. Including those
issued to the U.S. Department of Education, an aggregate of
$137.8 million of letters of credit were outstanding at
June 30, 2009.

As a result of the Transaction, we are highly leveraged, and our
debt service requirements are significant. At June 30,
2009, we had $1,988.6 million in aggregate indebtedness
outstanding, including short-term debt under the revolving
credit facility. After giving effect to outstanding letters of
credit and amounts drawn, we had $84.7 million of
additional borrowing capacity on the revolving credit facility
at June 30, 2009. We expect our cash flows from operations,
combined with availability

under our revolving credit facility, to provide sufficient
liquidity to fund our current obligations, projected working
capital requirements and capital spending over the next twelve
months.

Federal Family
Education Loan Program and Private Student Loans

Approximately 81.5% and 13.1% of our net revenues were
indirectly derived from Title IV programs under the Higher
Education Act of 1965 and private loan programs, respectively,
in fiscal 2009 compared to 70.2% and 22.3% from Title IV
programs and private loan programs, respectively, in fiscal
2008. There have been significant recent developments that have
impacted these programs.

The U.S. government has recently made additional financial
aid available to students in order to meet rising post-secondary
education and decreased availability of private loans. Effective
July 1, 2008, the annual Stafford loans available for
undergraduate students under the FFEL program increased by
$2,000. Effective as of July 1, 2008, the maximum amount of
availability of a Pell grant increased to $4,731 per year from a
maximum of $4,310 per year in fiscal 2008. The maximum Pell
grant available to eligible students further increased effective
July 1, 2009 to $5,350 per award year.

The credit and equity markets of both mature and developing
economies have experienced extraordinary volatility, asset
erosion and uncertainty in the last year, leading to
governmental intervention in the banking sector in the United
States and abroad on an unprecedented scale. In particular,
adverse market conditions for consumer student loans have
resulted in providers of private loans reducing the
attractiveness
and/or
decreasing the availability of private loans to post-secondary
students, including students with low credit scores who would
not otherwise be eligible for credit-based private loans. In
order to provide student loans to certain of our students who do
not satisfy the new standard underwriting, we pay credit
enhancement fees to certain lenders (including Sallie Mae) based
on the principal balance of each loan disbursed by the lender.
An agreement we entered into with Sallie Mae to provide loans to
certain students who received a private loan from Sallie Mae
prior to April 17, 2008 and are continuing their education
but who do not satisfy Sallie Maes current standard
underwriting criteria expires in June 2010.

The reliance by students attending our schools on private loans
decreased substantially during fiscal 2009 due to the increased
availability of federal aid, including the $2,000 increase in
Stafford loan availability for undergraduate students as of
July 1, 2008, and certain operating initiatives we
implemented over the past 18 months. Excluding activity
under our Education Finance Loan program, approximately 14% of
the students attending our schools received a private loan in
fiscal 2009 as compared to approximately 24% in fiscal 2008. We
anticipate that the net revenues we receive from private loans
and the number of students receiving private loans will further
decrease in fiscal 2010.

In response to the tightened credit markets facing our students,
in August 2008 we introduced the Education Finance Loan program
through a private lender. The program enables students who have
exhausted all available government-sponsored or other aid and
have been denied a private loan to borrow a portion of their
tuition and other educational expenses at our schools if they or
a co-borrower meet certain eligibility and underwriting
criteria. Under the program, we purchase loans made by a private
lender to students who attend our schools. During fiscal 2009,
approximately 1.0% of our net revenues were from the Education
Finance Loan Program. We estimate that additional disbursements
under this program during fiscal 2010 will be approximately
$75 million.

The Education Finance Loan program adversely impacts our
liquidity and exposes us to new and greater credit risk because
we own loans to our students. This financing provides for
payments to us by our students over an extended term, which
could have a material adverse effect on our cash flows from
operations. In addition, we have the risk of collection with
respect to these loans, which resulted in an increase in our bad
debt expense as a percentage of net revenues in fiscal 2009
compared to prior fiscal years. While we are taking steps to
address the private loan needs of our students, the consumer
lending market could worsen. The inability of our students to
finance their education could cause our student population to
decrease, which could have a material adverse effect on our
financial condition, results of operations and cash flows.

The following table describes our commitments at June 30,
2009 under various contracts and agreements (in thousands):

Total

Amounts

Payments Due by Fiscal Year

Committed

2010

2011

2012

2013

2014

Thereafter

Revolving credit
facility(1)

$

100,000

$

100,000

$



$



$



$



$



Senior secured term loan facility

1,126,827

11,850

11,850

8,887

1,094,240





83/4% senior
notes due 2014

375,000









375,000



101/4% senior
subordinated notes due 2016

385,000











385,000

Mortgage debt of consolidated entity

1,194

238

244

264

284

164



Capital leases

622

534

88









Total short-term and long-term debt

1,988,643

112,622

12,182

9,151

1,094,524

375,164

385,000

Interest
payments(2)

772,101

151,979

157,303

138,375

173,240

72,279

78,925

Operating leases, extending through 2020

888,776

119,648

111,327

107,882

107,114

100,285

342,520

Unconditional purchase obligations through 2014

46,364

29,467

12,813

3,366

445

273



Education finance loan
program(3)

39,449

31,789

7,660









Total commitments

$

3,735,333

$

445,505

$

301,285

$

258,774

$

1,375,323

$

548,001

$

806,445

(1)

Borrowings under our revolving
credit facility, if any, mature on June 1, 2012. Since the
$100.0 million of borrowings outstanding under our
revolving credit facility at June 30, 2009 were repaid on
July 1, 2009, we have included these borrowings in the
table above as a fiscal 2010 repayment.

(2)

Interest payments are based on
either the fixed rate or the variable rate as of June 30,
2009 and assume that repayments are in accordance with the loan
agreements, without giving effect to mandatory prepayments.

(3)

We are required to purchase loans
originated by a private lender on behalf of our students under
the Education Finance Loan Program. There is typically a
10-month lag between the time a loan is originated by the
private lender and when we purchase it.

As described under Use of Proceeds, we expect to use
$323.9 million of the net proceeds from this offering to
repay a portion of our indebtedness. As a result, we expect that
our debt service obligations reflected in the chart above will
be reduced following this repayment of indebtedness.

Contingencies

In June 2007, The New England Institute of Art
(NEIA) received a civil investigative demand letter
from the Massachusetts State Attorney General requesting
information in connection with the Attorney Generals
review of alleged submissions of false claims by NEIA to the
Commonwealth of Massachusetts and alleged unfair and deceptive
student lending and marketing practices engaged in by the
school. In February 2008, the Attorney General informed NEIA
that it does not plan to further pursue its investigation of the
false claims and deceptive marketing practices. NEIA intends to
fully cooperate with the Attorney General in connection with its
investigation of NEIAs student lending practices.

The Art Institute of Portland and our schools located in
Illinois have received requests for information from the
Attorney General of their respective states addressing the
relationships between the schools and providers of loans to
students attending the schools. We have responded to the
requests for information and have fully cooperated with the
Attorneys General in their investigations, and we will continue
to do so should the investigations continue.

In August 2009, a complaint was filed in the District Court for
Dallas County, Texas against, among others, Argosy University.
The plaintiffs in the litigation are 15 former students who were
enrolled in the Clinical Psychology doctoral program at the
Dallas campus of Argosy University. The complaint alleges that,
prior to the plaintiffs enrollment
and/or while
the plaintiffs were enrolled in the program, the defendants
violated the Texas Deceptive Trade Practices and Consumer
Protection Act and made material misrepresentations regarding
the importance of accreditation of the program by the Commission
on Accreditation, American Psychological Association, the status
of the application of the Dallas campus of Argosy University for
such accreditation, the availability of loan repayment options
for the plaintiffs, and the quantity and quality of the
plaintiffs career options. Plaintiffs seek unspecified
monetary damages. The Company is currently evaluating the
recently filed complaint and has not yet filed a response.

In addition to the matters described above, we are a defendant
in certain legal proceedings arising out of the conduct of our
business. In the opinion of management, based upon an
investigation of these claims and discussion with legal counsel,
the ultimate outcome of such legal proceedings, individually and
in the aggregate, is not anticipated to have a material adverse
effect on our consolidated financial position, results of
operations or liquidity.

In August 2008, we introduced the Education Finance Loan program
with a private lender, which enables students who have exhausted
all available government-sponsored or other aid and have been
denied a private loan to borrow funds to finance a portion of
their tuition and other educational expenses. Under the
Education Finance Loan program, we purchase loans that are
originated by a private lender. As of June 30, 2009, we
were committed to purchase $39.4 million of loans over the
next two fiscal years.

Off Balance Sheet
Arrangements

At June 30, 2009, we had provided $9.1 million of
surety bonds primarily to state regulatory agencies through four
different surety providers. We believe that these surety bonds
will expire without being funded; therefore, the commitments are
not expected to affect our financial condition.

Indebtedness

Overview

As of June 30, 2009, we had $1,988.6 million in
aggregate indebtedness outstanding, with $112.6 million
included in current liabilities. This indebtedness was incurred
primarily to finance the Transaction and related expenses. After
giving effect to outstanding letters of credit and amounts
drawn, we also had an additional $84.7 million of borrowing
capacity available under our revolving credit facility.

Our liquidity requirements are significant and include debt
service and capital expenditures, as further described below. We
benefit from investments with attractive returns on capital and
favorable working capital balances due to the advanced payment
of tuition and fees. We generated cash flows from operations of
$293.4 million and $152.7 million in fiscal 2009 and
fiscal 2008, respectively. Our obligations to make principal and
interest payments on indebtedness we incurred in June 2006 in
connection with the Transaction have not negatively impacted our
ability to make investments in numerous areas of our business.
We have invested in marketing and admissions, new and expanded
campuses, online education and infrastructure necessary to
support future enrollment growth and enhance the student
experience. However, our term loan facility matures on
June 1, 2013, our
83/4% senior
notes mature on June 1, 2014, and our
101/4% senior
subordinated notes mature on

June 1, 2016. Our ability to make scheduled payments on our
indebtedness, or to refinance our obligations under our debt
agreements on acceptable terms, if at all, will depend on our
financial and operating performance. Our operating performance
is subject to prevailing economic and competitive conditions and
to the financial and business risk factors described in this
prospectus, many of which are beyond our control. If our cash
flows and capital resources are insufficient to fund our debt
service obligations, we may be forced to reduce or delay the
opening of new schools, acquisitions or capital expenditures,
sell assets, seek to obtain additional equity capital or
restructure our indebtedness.

Senior
Secured Credit Facilities

Overview. In connection with the Transaction,
our subsidiary, Education Management LLC, entered into senior
secured credit facilities consisting of a $1,185.0 million
term loan facility and a $300.0 million revolving credit
facility. In February 2008, we increased our revolving credit
facility to $322.5 million through increased bank
participation. In August 2009, we signed an agreement to
increase capacity on our revolving credit facility from
$322.5 million to $388.5 million and to add two letter
of credit issuing banks. The addition of issuing banks increased
amounts available for letters of credit from $175.0 million
to $375.0 million. The agreement also outlines terms under
which the revolving credit facility could be increased by up to
another $54.0 million once we complete a qualifying initial
public offering under the terms of the senior credit facility.
Upon consummation of this offering, the revolving credit
facility will automatically increase to $442.5 million. The
revolving credit facility includes borrowing capacity available
for letters of credit and for borrowings on
same-day
notice, referred to as swing line loans.

As of June 30, 2009, we had aggregate outstanding
borrowings of $1,226.8 million under our senior secured
credit facilities.

Interest Rate and Fees. Borrowings under the
senior secured credit facilities bear interest at a rate equal
to LIBOR plus an applicable margin or, at our option, an
applicable margin plus an alternative base rate determined by
reference to the higher of (x) the prime rate as published
in The Wall Street Journal or (y) the federal funds
rate plus
1/2
of 1.0%. The applicable margin for borrowings under the
revolving credit facility is 0.5% with respect to base rate
borrowings and 1.5% with respect to LIBOR borrowings. Under the
term loan facility, the margin is 0.75% with respect to base
rate borrowings and 1.75% with respect to LIBOR borrowings, at
June 30, 2009. The applicable margin for borrowings under
the senior secured credit facilities has been reduced subject to
our attainment of certain leverage ratios, as discussed below.

We utilize interest rate swap agreements, which are contractual
agreements to exchange payments based on underlying interest
rates, to manage the variable rate portion of our term debt. On
June 6, 2006, we entered into two five-year interest rate
swap agreements for a total notional amount of
$750.0 million in order to hedge a portion of our exposure
to variable interest payments associated with the senior secured
credit facilities. Under the terms of the interest rate swaps,
we receive payments based on variable interest rates based on
the three month LIBOR and make payments based on a fixed rate of
5.397%.

In addition to paying interest on outstanding principal under
the senior secured credit facilities, we are required to pay a
commitment fee to the lenders under the revolving credit
facility in respect of the unutilized commitments thereunder. At
June 30, 2009, the commitment fee rate was 0.375% per
annum. We must also pay customary letter of credit fees.

Payments. We are required to pay installments
on the loans under the term loan facility in quarterly principal
amounts of $3.0 million, which is equal to 0.25% of their
initial total funded principal amount calculated as of the
closing date, through April 1, 2013. The remaining amount
is payable on June 3, 2013, which we estimate will be
$1,082.4 million, assuming that we do not make any prepayments
before then. Principal amounts outstanding under the revolving
credit facility are due and payable in full on June 1, 2012.

We may be required to make additional principal payments based
on excess cash flow generated for the preceding fiscal year and
our debt covenant ratios, as defined in the senior secured term
loan agreement. We have not been required to make such a
prepayment since the second quarter of fiscal 2008. We are not
required to make an additional payment relating to the fiscal
year ended June 30, 2009 due to Education Management
LLCs Consolidated Total Debt to Adjusted EBITDA ratio,
described below, being below 5.00 to 1.00.

The credit agreement governing Education Management LLCs
senior secured credit facilities also contains certain customary
affirmative covenants and events of default and has a
cross-default provision to debt with a principal amount of
greater than $50 million, which would cause the term loan
to be prepaid or redeemed in the event of a default with respect
to such debt.

Subject to meeting certain qualifications, the indentures
governing the Notes permit us and our restricted subsidiaries to
incur additional indebtedness, including secured indebtedness.
The indentures governing the Notes include cross-default
provisions to debt with a principal amount of greater than
$50.0 million, which would require the applicable Notes to
be prepaid or redeemed in the event of a default with respect to
such debt.

Covenant
Compliance

Under its senior secured credit facilities, our subsidiary,
Education Management LLC, is required to satisfy a maximum total
leverage ratio, a minimum interest coverage ratio and other
financial conditions tests. As of June 30, 2009, it was in
compliance with the financial and non-financial covenants. Its
continued ability to meet those financial ratios and tests can
be affected by events beyond our control, and we cannot assure
you that it will meet those ratios and tests in the future.

Adjusted EBITDA is a non-GAAP measure used to determine our
compliance with certain covenants contained in the indentures
governing the Notes and in the credit agreement governing our
senior secured credit facilities. Adjusted EBITDA is defined as
EBITDA further adjusted to exclude unusual items and other
adjustments permitted in calculating covenant compliance under
our senior secured credit facilities and the indentures
governing the Notes. We believe that the inclusion of
supplementary adjustments to EBITDA applied in presenting
Adjusted EBITDA is appropriate to provide additional information
to investors to demonstrate compliance with our financing
covenants.

The breach of covenants in the credit agreement governing our
senior secured credit facilities that are tied to ratios based
on Adjusted EBITDA could result in a default under that
agreement, in which case the lenders could elect to declare all
borrowed amounts immediately due and payable. Any such
acceleration also would result in a default under our indentures
governing the Notes. Additionally, under the credit agreement
governing our senior secured credit facilities and the
indentures governing the Notes, our subsidiaries ability
to engage in activities, such as incurring additional
indebtedness, making investments and paying dividends or other
distributions, is also tied to ratios based on Adjusted EBITDA.

Adjusted EBITDA does not represent net income or cash flows from
operations as those terms are defined by GAAP and does not
necessarily indicate whether cash flows will be sufficient to
fund cash needs. In addition, unlike GAAP measures such as net
income and earnings per share, Adjusted EBITDA does not reflect
the impact of our obligations to make interest payments on our
other debt service obligations, which have increased
substantially as a result of the indebtedness incurred in June
2006 to finance the Transaction and related expenses. While
Adjusted EBITDA and similar measures frequently are used as
measures of operations and the ability to meet debt service
requirements, these terms are not necessarily comparable to
other similarly titled captions of other companies due to the
potential inconsistencies in the method of calculation. Adjusted
EBITDA does not reflect the impact of earnings or charges
resulting from matters that we may consider not to be indicative
of our ongoing operations. In particular, the definition of
Adjusted EBITDA in our senior credit facilities and the
indentures governing the Notes allows us to add back certain
non-cash, extraordinary, unusual or non-recurring charges that
are deducted in calculating net income. However, these are
expenses that may recur, vary greatly and are difficult to
predict. Further, our debt instruments require that Adjusted
EBITDA be calculated for the most recent four fiscal quarters.
As a result, the measure can be affected disproportionately by a
particularly strong or weak quarter. Further, it may not be
comparable to the measure for any subsequent
12-month
period or any complete fiscal year.

The following is a reconciliation of net income, which is a GAAP
measure of operating results, to Adjusted EBITDA for Education
Management LLC as defined in its debt agreements. The terms and
related calculations are defined in the senior secured credit
agreement (in millions).

Year Ended

For the Year Ended

June 30,

June 30, 2009,

2008

2009

as
adjusted(1)

Net income

$

64.7

$

104.2

$

122.5

Interest expense, net

157.7

153.6

124.6

Provision for income taxes

41.1

61.2

71.9

Depreciation and
amortization(2)

100.3

112.3

112.3

EBITDA

363.8

431.3

431.3

Reversal of impact of unfavorable
leases(3)

(1.5

)

(1.4

)

(1.4

)

Advisory and transaction
costs(4)

5.0

5.0

5.0

Severance and relocation

3.7

4.9

4.9

Capital taxes

1.2

1.2

1.2

Other

1.7

1.5

1.5

Adjusted EBITDA  Covenant Compliance

$

373.9

$

442.5

$

442.5

(1)

As adjusted to give effect to (i) the sale of
20,000,000 shares of common stock by us in this offering at
the initial public offering price of $18.00 per share at
July 1, 2008 and (ii) the application of the net
proceeds of this offering as described under Use of
Proceeds.

(2)

Depreciation and amortization includes non-cash charges related
to fixed asset impairments of $5.5 million in the year ended
June 30, 2008.

(3)

Represents non-cash reductions to rent expense due to the
amortization on $7.3 million of unfavorable lease
liabilities resulting from fair value adjustments required under
SFAS No. 141 as part of the Transaction.

(4)

Represents $5.0 million of advisory fees per annum
beginning June 1, 2006 under the Sponsor Management
Agreement.

Education Management LLCs covenant requirements and actual
and as adjusted ratios for fiscal 2009 are as follows:

Covenant

Actual

As Adjusted

Requirements

Ratios

Ratios(1)

Senior Secured Credit Facilities

Adjusted EBITDA to Consolidated Interest Expense ratio

Minimum of 1.70

x

2.88

x

3.55

x

Consolidated Total Debt to Adjusted EBITDA ratio

Maximum of 6.75

x

3.77

x

3.10

x

(1)

As adjusted to give effect to (i) the sale of
20,000,000 shares of common stock by us in this offering at
the initial public offering price of $18.00 per share at
July 1, 2008 and (ii) the application of the net
proceeds of this offering as described under Use of
Proceeds.

Quantitative and
Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of
business that include foreign currency exchange rates. We
typically do not utilize forward or option contracts on foreign
currencies or commodities. We are subject to fluctuations in the
value of the Canadian dollar relative to the

U.S. dollar. We do not believe we are subject to material
risks from reasonably possible near-term changes in exchange
rates due to the size of our Canadian operations relative to our
total business.

The fair values of cash and cash equivalents, accounts
receivable, borrowings under our revolving credit facility,
accounts payable and accrued expenses approximate carrying
values because of the short-term nature of these instruments.
The derivative financial instruments are carried at fair value,
which is based on the SFAS No. 157 framework discussed in
Note 8 to the accompanying audited consolidated financial
statements. We do not use derivative instruments for trading or
speculative purposes.

At June 30, 2009, we had total debt obligations of
$1,988.6 million, including $1,226.8 million in
variable rate debt under the senior secured credit facility at a
weighted average interest rate of 6.98%. A hypothetical change
of 1.25% in interest rates from June 30, 2009 levels would
have increased or decreased interest expense by approximately
$6.0 million for the variable-rate debt in fiscal 2009.

Two five-year interest rate swap agreements fix the interest
rate on $750.0 million of our variable rate debt through
July 1, 2011. At June 30, 2009, we had variable rate
debt of $476.8 million that was subject to market rate
risk, as our interest payments fluctuated as a result of market
changes. Under the terms of the interest rate swaps, we receive
variable payments based on the three month LIBOR and make
payments based on a fixed rate of 5.397%. The net receipt or
payment from the interest rate swap agreements is recorded in
interest expense. The interest rate swaps are designated and
qualify as cash flow hedges under SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities. As such, the swaps are accounted for as an
asset or liability in the consolidated balance sheet at fair
value. We used level two inputs when applying
SFAS No. 157, Fair Value Measurements, to
our interest rate swap agreements, including obtaining quotes
from counterparties to the transactions and assessing
nonperformance risk based upon published market data. For fiscal
2009, we recorded an unrealized after-tax loss of
$9.8 million in other comprehensive loss related to the
change in market value on the swap agreements. The cumulative
unrealized net loss of $34.2 million, net of tax, at
June 30, 2009 related to the swaps may be recognized in the
consolidated statement of operations if certain terms of the
senior secured credit facilities change, if the senior secured
credit facilities are extinguished or if the swap agreements are
terminated prior to maturity.

Regulations

U.S. Department of Education regulations require
Title IV program funds received by our schools in excess of
the tuition and fees owed by the relevant students at that time
to be, with these students permission, maintained and
classified as restricted funds until they are billed for the
portion of their education program related to those funds. Funds
transferred through electronic funds transfer programs are held
in a separate cash account and released when certain conditions
are satisfied. These restrictions have not significantly
affected our ability to fund daily operations.

Education institutions participating in Title IV programs
must satisfy a series of specific standards of financial
responsibility. The U.S. Department of Education has
adopted standards to determine an institutions financial
responsibility to participate in Title IV programs. The
regulations establish three ratios: (i) the equity ratio,
intended to measure an institutions capital resources,
ability to borrow and financial viability; (ii) the primary
reserve ratio, intended to measure an institutions ability
to support current operations from expendable resources; and
(iii) the net income ratio, intended to measure an
institutions profitability. Each ratio is calculated
separately, based on the figures in the institutions most
recent annual audited financial statements, and then weighted
and combined to arrive at a single composite score. The
composite score must be at least 1.5 for the institution to be
deemed financially responsible without conditions or additional
oversight. If an institution fails to meet any of these
requirements, the U.S. Department of Education may set
restrictions on our eligibility to participate in Title IV
programs. We are required by the U.S. Department of
Education to post a letter of credit and are subject to
provisional certification and additional financial and cash
monitoring of our disbursements of Title IV funds due to
our failure on a consolidated basis to satisfy the financial
responsibility

standards after the completion of the Transaction. This is a
result of the goodwill we recorded in connection with the
Transaction. The amount of this letter of credit is currently
set at 10% of the Title IV program funds received by
students at our schools during the prior fiscal year. As a
result, we posted an $87.9 million letter of credit in
October 2006. Due to increases in the aggregate amount of Title
IV funds received by our students, we currently post a
$120.5 million letter of credit to the U.S. Department
of Education.

Regulations promulgated under the HEA require all for-profit
education institutions to comply with the 90/10 Rule, which
imposes sanctions on participating institutions that derive more
than 90% of their total revenue from Title IV programs.
Under the current regulations, compliance with the
90/10 Rule
is measured at the end of each of our fiscal years. An
institution will cease to be eligible to participate in
Title IV programs if, on a cash accounting basis, more than
90% of its revenues for each of two consecutive fiscal years
were derived from Title IV programs. If an institution
loses its Title IV eligibility under the 90/10 Rule, it may
not reapply for eligibility until the end of two fiscal years.
Institutions which fail to satisfy the 90/10 Rule for one fiscal
year are placed on provisional certification. For our schools
that disbursed federal financial aid during fiscal 2009, the
percentage of revenues derived from Title IV programs on a
cash accounting basis ranged from approximately 55% to 86%, with
a weighted average of approximately 70% as compared to a
weighted average of approximately 65% in fiscal 2008. We
anticipate that our 90/10 rates will continue to increase in
fiscal 2010 due to recent increases in grants from the Pell
program and other Title IV loan limits, coupled with
decreases in the availability of state grants and private loans
and the inability of households to pay cash due to the current
economic climate. While our consolidated 90/10 rate for fiscal
2010 is projected to remain under the 90% threshold, we project
that some of our institutions will exceed the 90% threshold if
we do not continue to successfully implement certain changes to
these institutions during the fiscal year which would decrease
their 90/10 rate, such as increases in international and
military students and certain internal restructuring designed to
achieve additional operating efficiencies. In prior years, we
have successfully addressed 90/10 rate issues when they have
arisen through similar changes to operations. Additionally, the
revised rules included in the new HEA reauthorization include
relief through June 30, 2011 from a $2,000 increase in the
annual Stafford loan availability for undergraduate students
which became effective July 1, 2008. We anticipate that our
90/10 rate will increase substantially in fiscal 2012 in the
event that relief from this additional $2,000 is not extended
beyond June 30, 2011, which would adversely affect our
ability to comply with the 90/10 Rule.

Use of Estimates
and Critical Accounting Policies

General

In preparing our financial statements in conformity with
accounting principles generally accepted in the United States,
judgments and estimates are made about the amounts reflected in
the consolidated financial statements that affect the reported
amounts of assets, liabilities, net revenues and expenses during
the reporting period. As part of the financial reporting
process, our management collaborates to determine the necessary
information on which to base judgments and develop estimates
used to prepare the consolidated financial statements.
Historical experience and available information are used to make
these judgments and estimates. However, different amounts could
be reported using different assumptions and in light of changes
in facts and circumstances. Therefore, actual amounts could
differ from the estimates reflected in the audited consolidated
financial statements appearing elsewhere in this prospectus.

We believe that the following critical accounting policies
comprise the more significant judgments and estimates used in
the preparation of the consolidated financial statements.

Revenue
Recognition and Receivables

We bill tuition and housing revenues at the beginning of an
academic term and recognize the revenue on a pro rata basis over
the term of instruction or occupancy. Some of our academic terms

have starting and ending dates that differ from our fiscal
quarters. Therefore, at the end of each fiscal quarter, we may
have tuition from these academic terms on which the associated
revenue has not yet been earned. Accordingly, this unearned
revenue has been recorded as unearned tuition in the
accompanying consolidated balance sheets. Advance payments
represent that portion of payments received but not earned and
are also recorded as a current liability in the accompanying
consolidated balance sheets. These payments are typically
related to future academic periods and generally are refundable.

If a student withdraws from one of our schools, a students
obligation for tuition and fees is limited depending on when a
student withdraws during an academic term. Student refunds are
regulated by the standards of the U.S. Department of
Education, most state education authorities that regulate our
schools, the accrediting commissions that accredit our schools
and our own internal policies (collectively, Refund
Policies). Refund Policies vary by state, and the
limitations imposed by the Refund Policies are generally based
on the portion of the academic term that has elapsed at the time
the student withdraws. The greater the portion of the academic
term that has elapsed at the time the student withdraws, the
greater the students obligation is to the school for the
tuition and fees related to that academic term. We record
revenue net of any refunds that result from any applicable
Refund Policy; therefore, we do not recognize gross revenue on
amounts that will ultimately be refunded in future periods.

Trade receivable balances consist of amounts related to net
revenues from current or former students for academic terms that
have been completed or are currently in session, prior periods
of occupancy in our housing facilities for which payment has not
been received or obligations of current students for tuition,
housing or other items related to academic terms in progress for
which payment has not been received. The balances are comprised
of individually insignificant amounts due from students
primarily from the United States and Canada.

We determine our allowance for doubtful accounts for most
locations primarily by categorizing gross receivables based upon
the enrollment status (in-school vs. out-of-school) of the
student and establishing a reserve based on the likelihood of
collection in consideration of our historical experience and
current economic conditions. Student accounts are monitored
through an aging process whereby past due accounts are pursued.
When certain criteria are met (primarily aging with no payments
and account balances past the due date by more than four months)
and internal collection measures have been taken without
success, the accounts of former students are placed with an
outside collection agency. Student accounts in collection are
reserved at a high rate and are evaluated on a
case-by-case
basis before being written off. If current collection trends
differ significantly from historical collections, an adjustment
to our allowance would be required. Historically, however,
accounts we have ultimately written off have approximated our
uncollectable accounts estimates. A one percentage point change
in our allowance for doubtful accounts as a percentage of gross
receivables at June 30, 2009 and 2008 would have resulted
in a change in net income of $1.3 million and
$0.8 million, respectively, for the years ended
June 30, 2009 and 2008.

Impairment of
Property, Equipment and Finite-Lived Intangible Assets

We record impairment losses on property, equipment and
finite-lived intangible assets when events and circumstances
indicate the assets are impaired and the undiscounted cash flows
estimated to be generated by those assets are less than their
carrying amounts, as described in SFAS No. 144,
Accounting or Disposal of Long-Lived Assets. Events
and circumstances that trigger an impairment review include
deteriorating economic conditions or poor operating performance
at individual locations or groups of locations. The impairment
loss is measured by comparing the fair value of the assets to
their carrying amounts using a traditional discounted cash flow
model, and it is recorded as an operating expense in the
consolidated statement of operations in the period in which
carrying value exceeds fair value. As described in Notes 4
and 5 to the audited June 30, 2009 consolidated financial
statements, we recorded an impairment charge of
$4.5 million related to property and equipment and
$1.0 million related to finite-lived intangible assets
during fiscal 2008. For other property, equipment

and finite-lived intangible assets that were tested for
impairment, the sum of the future undiscounted cash flows was
sufficiently in excess of the carrying amounts such that
reducing the cash flows by 10% would not have resulted in
impairment. We did not record any impairment charges during the
year ended June 30, 2009.

Impairment of
Goodwill and Indefinite-Lived Intangible Assets

We evaluate our goodwill and indefinite-lived intangible assets
for impairment at least annually, using April 1 as our
measurement date. SFAS No. 142, Goodwill and
Other Intangible Assets, prescribes a two-step method for
determining goodwill impairment. In the first step, we determine
the fair value of each reporting unit and compare that fair
value to each units carrying value. We estimate the fair
value of our reporting units using a traditional discounted cash
flow approach coupled with the guideline public company method
that takes into account the relative price and associated
earnings multiples of publicly-traded peer companies. If the
results of this first step indicate the carrying amount of a
reporting unit is higher than its fair value, the second step
under SFAS No. 142 must be performed, which requires that
we determine the implied fair value of goodwill in the same
manner as if we had acquired those reporting units as of the
testing date. Under the second step, an impairment is recognized
if the carrying amount of a reporting units goodwill is
greater than its implied fair value. If an impairment charge was
required to be recorded, it would be presented as an operating
expense in the period in which the goodwills carrying
value exceeds its new implied fair value.

Our last annual test, which was performed as of April 1,
2009, resulted in an increase in each reporting units
calculated equity value as compared to the date of the
Transaction. As a result, each reporting units fair value
exceeded its carrying value as measured under the first step of
the SFAS No. 142 analysis. In addition, although we
perform our full impairment test under SFAS No. 142
only once annually, throughout the fiscal year we evaluate
forecasts, business plans, regulatory and legal matters and
other activities necessary to identify triggering events under
SFAS No. 142. There were no triggering events in the
interim period between our 2008 and 2009 impairment tests at any
of our reporting units. Further, we did not record any goodwill
impairments from the date of the Transaction through
April 1, 2009.

The following table illustrates the amount of goodwill allocated
to each reporting unit as well as the deficit, if any, created
between the fair value and the carrying value that would occur
given hypothetical reductions in their respective fair values at
April 1, 2009:

Step One Analysis:

Deficit Caused By Hypothetical Reductions to Fair Value

(in millions)

Goodwill

5%

15%

25%

35%

The Art Institutes

$

1,982

$



$



$



$



Argosy University

219





(14

)

(54

)

Brown Mackie Colleges

255





(2

)

(59

)

South University

123







(27

)

$

2,579

$



$



$

(16

)

$

(140

)

The valuations of our reporting units require use of internal
business plans that are based on judgments and estimates
regarding future economic conditions, demand and pricing for our
educational services, costs, inflation rates and discount rates,
among other factors. These judgments and estimates involve
inherent uncertainties. The measurement of the fair values of
the reporting units are dependent on the accuracy of the
assumptions used and how these estimates compare to our future
operating performance. Details of the key assumptions used in
our impairment evaluation include, but are not limited to, the
following:



Discount rate  The discount rate is based on each
reporting units estimated weighted average cost of capital
(WACC). The cost of equity, cost of debt and capital structure
are the

three components of the WACC, each of which requires judgment by
management to estimate. The cost of equity was developed using
the Capital Asset Pricing Model (CAPM) which is comprised of a
risk free rate, beta derived from comparable company betas, and
an equity risk premium combined with other company-specific
adjustments based on perceived risks and predictability of
future cash flows. The equity risk premium, which utilizes the
Morningstar 2008
Ibbotson®
and SBBI 2008 Valuation Workbook, is calculated by taking large
company stock total returns minus long-term government bond
income returns. The cost of debt component represents a market
participants estimated cost of borrowing, which we
estimated using an average of corporate bond yields as of the
valuation date. The capital structure component is estimated
based on the target capital structure ratios of our industry
peer group as of the testing date.

The global recession that occurred during fiscal 2009 adversely
affected our WACC, which has increased from a blended rate of
12.0% at April 1, 2008 to 12.7% at April 1, 2009. Any
difference in WACC used between reporting units was primarily
due to the impact of the relative maturity of each unit on the
predictability of its future cash flows. Sensitivity analyses
performed in connection with our annual 2009 impairment test
indicated that an increase in the discount rate of 1.0% at each
of our reporting units would not have resulted in the carrying
values of the reporting unit exceeding its respective estimated
fair value.



Future cash flow assumptions  Our projections are
based on organic growth and are derived from historical
experience and assumptions on how growth and profitability will
trend into the future. These projections also take into account
the continuing growing demand for post-secondary education and
the growth opportunities that exist in our markets. Our assumed
period of cash flows was ten years with a terminal value
determined using the Gordon Growth Model. For our 2009 annual
impairment test, a decrease in the projected cash flows of 10%
would not have resulted in the carrying value of any of our
reporting units exceeding its fair value.

The impairment test for indefinite-lived intangible assets
requires an annual determination of fair value using the same
approach used for the valuation as of the acquisition date. If
the fair value falls below its carrying value, an impairment
would be recorded in the period in which the carrying value
exceeds the fair value.

Our indefinite-lived intangible assets consist of the trade
names associated with The Art Institute schools, and licensing,
accreditation and Title IV program participation assets for
all of our education systems. The total carrying value of these
assets at April 1, 2009 was as follows:



$330.0 million related to The Art Institutes
tradename; and



$112.2 million related to our licensing, accreditation and
Title IV program participation assets.

As of the date of our annual impairment test, we revalued The
Art Institutes tradename using the Relief from Royalty method,
the same approach used to value this asset as of the date of the
Transaction. The Relief from Royalty method focuses on the level
of royalty payments that the user of an intangible asset would
have to pay a third party for the use of the asset if it were
not owned by the user. The resulting analysis demonstrated that
the tradename had a higher fair value than carrying value by
approximately 10%, using a standard royalty rate of 2.0% and
discount rate of 11.8% As a result, we did not record an
impairment related to this asset during the year ended
June 30, 2009.

We also revalued the licensing, accreditation and Title IV
program participation assets at the impairment testing date
using the same approaches used to value these assets as of the
date of the Transaction. These assets were valued by a
combination of the cost and income approaches. Costs to replace
licenses and accreditations have not changed significantly since
the date of the Transaction or since the impairment testing
date. Numerous factors are considered in order to estimate the
Title IV portion of the asset, including the estimated amount of
time it would take for an institution to qualify for
Title IV funds as a new operation, the number of students
currently receiving federal financial aid,

the amount schools would have to lend students during the
estimated time it would take to qualify for Title IV funds
and the present value of projected cash flows. The current fair
values of the licensing, accreditation and Title IV program
participation asset at each reporting unit exceeded its carrying
value by at least 10%, with the consolidated fair values of
these assets exceeding the consolidated carrying value by more
than 20%.

Income
Taxes

We account for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes,
which requires the use of the asset and liability method. Under
this method, deferred tax assets and liabilities result from
(i) temporary differences in the recognition of income and
expense for financial and income tax reporting requirements, and
(ii) differences between the recorded value of assets
acquired in business combinations accounted for as purchases for
financial reporting purposes and their corresponding tax bases.
SFAS No. 109 also requires that deferred income tax
assets be reduced by a valuation allowance if it is
more-likely-than-not that some portion of the deferred income
tax asset will not be realized. We evaluate all available
evidence, both positive and negative, on a quarterly basis to
determine whether, based on the weight of that evidence, a
valuation allowance is needed. Future realization of the tax
benefit from an existing deferred tax asset ultimately depends
upon the existence of sufficient taxable income within the
carryback or carryforward period available under the tax law of
the applicable jurisdiction. At June 30, 2009 and 2008, we
had gross deferred tax assets of $112.5 million and
$76.1 million, respectively, and valuation allowances
against those gross deferred tax assets of $18.8 million
and $22.5 million, respectively. We re-evaluate the
realizability of these deferred tax assets quarterly and will
adjust the valuation allowances based upon available evidence.
Any future change in our assessment of the realizability of
these deferred tax assets could affect our effective income tax
rate, net income, and net deferred tax assets in the period in
which our assessment changes.

We adopted the provisions of FIN 48, Accounting for
Uncertainty in Income Taxes  An Interpretation of
FASB Statement No. 109, on July 1, 2007. Under
FIN 48, we may recognize the tax benefit from an uncertain
tax position only if it is at least more-likely-than-not that
the tax position will be sustained upon examination by the
taxing authorities, based on the technical merits of the
position. The amount of the tax benefit so recognized is
measured as the largest amount of benefit that is
more-likely-than-not to be realized upon effective settlement.
We classify interest and penalties accrued in connection with
unrecognized tax benefits as income tax expense in our
consolidated statement of operations. This classification is
consistent with our past accounting policy for interest and
penalties related to tax liabilities.

Share-Based
Payment

In August 2006, our Board of Directors approved the 2006 Stock
Option Plan for executive management and key personnel. As of
June 30, 2009, approximately 7.8 million options were
outstanding under this plan. Under SFAS No. 123R,
Share Based Payment, compensation expense related to
our grants is not recognized until one of the conditions
entitling participants to fair value for their shares becomes
probable. We have not recognized any compensation expense under
SFAS No. 123R since the Transaction even though certain of
our time-based stock options vested during these fiscal years
because (i) shares of our common stock that are received upon an
option holders exercise are subject to a call right held
by us, which allows us to repurchase such common stock at a
value equal to the lesser of an option exercise price or current
fair value if an employee voluntarily terminates his or her
employment or is terminated for cause, and (ii) in the event
that we do not exercise this repurchase right, the holder is
prohibited from selling the shares of common stock received upon
exercise of a stock option without our prior consent. A 10%
increase in the fair values of our time-based and
performance-based options would have increased our unrecognized
compensation cost by $3.6 million at June 30, 2009.

We use the Black-Scholes option pricing model to determine the
fair value of time-based stock options at the grant date. In
order to value performance-based options, we use a Monte Carlo
simulation model. Both models require management to make certain
assumptions to determine compensation expense. Such assumptions
can significantly impact the fair values of stock options and
associated compensation expense recognized over the requisite
service periods. See Note 11 to the accompanying audited
consolidated financial statements for a further discussion on
share-based compensation.

Our Board of Directors establishes the exercise price for each
option grant based on the estimated fair value at the date of
grant. Given that we were not publicly traded during the period
covered by the 2006 Stock Option Plan, we used assumptions and
valuation methodologies to estimate the fair value of our common
stock during the period. In order to value our
SFAS No. 123R compensation expense, options granted in
August and December 2006 were based on contemporaneous private
transactions involving our common stock. Beginning in January
2007, option grants were valued based on a valuation as of the
beginning or ending of the fiscal quarter in which the options
were granted, depending on the proximity of the grant date to
the beginning or ending of the quarter. We did not separately
estimate the values of common stock during periods between our
quarter-end dates because we believe a quarterly fair value
calculation for our common stock is a reasonable method of
estimating its fair value at any point during the quarter.
Variations of both the market and income approaches were used in
the analyses for all quarterly valuations. The valuations used
the following methodologies described in the American Institute
of Certified Public Accountants practice aid entitled
Valuation of Privately-Held-Company Equity Securities Issued
as Compensation:

(i) a discounted cash flow analysis (Income
Method or DCF);

(ii) the Guideline Public Company method; and

(iii) the Guideline Transactions method.

The valuations derived under each approach were then weighted to
derive an overall company value, which was used to value our
common stock after adjusting for outstanding indebtedness.
Factors contributing to the results of the three methods used,
and the relative weights of each methodology, were as follows:

(i)

Income method
(DCF)

The income method considers our consistent revenue and EBITDA
growth since the Transaction along with our significant
leverage, the regulatory nature of our business and our ability
to attract and retain key personnel. A weight of 50% was given
to this method in determining the fair value of our common stock
for all valuations.

(ii)

Guideline Public
Company method

The Guideline Public Company method uses the relative price and
associated earnings multiples of publicly traded peer companies.
The same peer group was used for each valuation. Under this
methodology, we compared our financial results to those of our
competitors for each of the following quantitative measures:
profit margins from the last twelve months; size as it relates
to the cost of capital; historical revenue growth; historical
EBITDA growth; and asset returns and leverage. Qualitative
factors were also considered. A weight of 25% or 50% was given
to this method in determining the fair value of our common
stock, depending on relevant factors at the date of our
valuation.

(iii)

Guideline
Transactions method

The Guideline Transactions method is based on actual market
transactions of companies within our peer group including us. A
weight of 0% or 25% was given to this method in determining the
fair value of our common stock, depending on relevant factors at
the date of our valuation.

We also considered the following additional factors which
generally affect the fair market value of our common stock for
option grants after December 31, 2006:



the nature, history and growth opportunities of our business;



the outlook for the general economy and for our industry;



the book value of the securities and our financial condition;



the historical trend of earnings and the future earnings and
dividend-paying potential;



market valuations of our publicly traded competitors, with
particular attention given to the ratio of price to sales,
equity and earnings; and



the risk involved in the investment, as related to earnings
stability, capital structure, competition and market potential.

Long-Term
Incentive Compensation Plan

Our Board of Directors adopted the LTIC Plan during fiscal 2007.
Pursuant to the terms of the plan, a bonus pool will be created
based on specified returns on capital invested in EDMC by the
Principal Shareholders after the occurrence of a realization
event, as defined in the plan. Out of a total of 1,000,000 units
authorized, approximately 835,000 units were outstanding at
June 30, 2009. Each unit represents the right to receive a
payment based on the value of the bonus pool. Since the
contingent future events that would result in value to the
unit-holders are not probable to occur at June 30, 2009, we
have not recognized any compensation expense related to these
units. The plan is currently being accounted for as a
liability-based plan as the units must be settled in cash if a
realization event were to occur prior to an initial public
offering of our common stock. If we were to complete an initial
public offering, the units may be settled in shares of common
stock or cash at the discretion of our Board of Directors.

New Accounting
Standards

In February 2008, the FASB issued FASB Staff Position
(FSP)
No. 157-2,
Effective Date of FASB Statement No. 157, which
delayed the effective date for applying SFAS No. 157
to nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. Nonfinancial assets and
nonfinancial liabilities for which we have not applied the
provisions of SFAS No. 157 include those measured at
fair value as a result of goodwill and long-lived asset
impairment testing. We do not expect the adoption of FSP
No. 157-2,
which is effective for us on July 1, 2009, to have a
material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R,
Business Combinations, which establishes principles
and requirements for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in a company
it acquires, including the recognition and measurement of
goodwill resulting from a business combination. The requirements
of SFAS No. 141R are effective for us beginning
July 1, 2009. We will apply the provisions of this standard
for any business combination that transpires subsequent to the
effective date of the standard.

In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities  an Amendment of FASB Statement 133,
which enhances required disclosures regarding how an entity uses
and accounts for derivative instruments. We adopted
SFAS No. 161 on January 1, 2009, and its adoption
did not impact our consolidated financial statements but did
result in expanded disclosures contained in Note 8 of our
audited consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165,
Subsequent Events, which formalizes the period after
the balance sheet date that management is required to evaluate
subsequent events, the

circumstances under which an entity is required to record events
or transactions occurring after the balance sheet date in that
periods financial statements and the required disclosures
that an entity shall make in its financial statements.
SFAS No. 165 is effective for us beginning in the
fourth fiscal quarter of 2009. We performed an evaluation of
subsequent events through August 28, 2009, the date the
financial statements were issued.

In June 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162. All existing
accounting standard documents are superseded by the
Codification. All current references to GAAP will no longer be
used in our consolidated financial statements upon adoption in
the first fiscal quarter of 2010. The Codification does not
change or alter existing GAAP; therefore, it will have no impact
on our consolidated financial statements.

We are among the largest providers of post-secondary education
in North America, with approximately 110,800 enrolled students
as of October 2008. We offer academic programs to our students
through campus-based and online instruction, or through a
combination of both. We are committed to offering quality
academic programs and continuously strive to improve the
learning experience for our students. We target a large and
diverse market as our educational institutions offer students
the opportunity to earn undergraduate and graduate degrees,
including doctoral degrees, and certain specialized non-degree
diplomas in a broad range of disciplines. These disciplines
include design, media arts, health sciences, psychology and
behavioral sciences, culinary, fashion, business, legal,
education and information technology. Each of our schools
located in the United States is licensed in the state in which
it is located, accredited by a national or regional
accreditation agency and certified by the U.S. Department
of Education, enabling students to access federal student loans,
grants and other forms of public and private financial aid. Our
academic programs are designed with an emphasis on applied
content and are taught primarily by faculty members who, in
addition to having appropriate academic credentials, offer
practical and relevant professional experience in their
respective fields. Our net revenues for fiscal 2009 were
$2,011.5 million.

Our schools comprise a national education platform that is
designed to address the needs of a broad market, taking into
consideration various factors that influence demand, such as
programmatic and degree interest, employment opportunities,
requirements for credentials in certain professions,
demographics, tuition pricing points and economic conditions. We
believe that our schools collectively enable us to provide
access to a high quality education for potential students, at a
variety of degree levels and across a wide range of disciplines.

During our more than
35-year
operating history, we have expanded the reach of our education
systems and currently operate 92 primary locations across
28 U.S. states and in Canada. In addition, we have
offered online programs since 2000, enabling our students to
pursue degrees fully online or through a flexible combination of
both online and campus-based education. During the period from
October 1998 through October 2008, we experienced a compounded
annual enrollment growth rate of 18.0%. During the same time
period, the schools that we have owned or operated for one year
or more experienced a compounded annual enrollment growth rate
of 12.0%. We seek to maintain growth in a manner that assures
adherence to our high standard of educational quality and track
record of student success.

Since the Transaction in June 2006, we have undertaken multiple
initiatives to increase our penetration of addressable markets
in order to enable us to accelerate our growth and expand our
market position. We have opened 20 new locations, acquired
two schools, developed 36 new academic programs and introduced
over 600 new or existing academic programs to locations that had
not previously offered such programs. The compound annual
enrollment growth rate at our schools was 19.6% between July
2006 and July 2009. During the same time period, the compound
annual enrollment growth rate for schools owned or operated for
one year or more was 18.2%. We have made significant capital
investments in technology and human resources, particularly in
marketing and admissions, designed to facilitate future
enrollment growth while enhancing the effectiveness of our
marketing efforts. We have also upgraded our infrastructure,
student interfaces and student support systems to enhance the
student experience, while providing greater operational
transparency. We have made considerable investments in our
online education platform, which has resulted in strong
enrollment growth. The number of students enrolled in fully
online academic programs has grown more than five-fold to
approximately 26,200 students in July 2009, compared to
approximately 4,600 students in July 2006. Finally, we have
enhanced our senior management team, achieving a balance of
experience from both within and outside the for-profit education
industry.

Each of our 92 schools provides student-centered education.
Our schools are organized and managed to capitalize on
recognized brands and align them with specific targeted markets
based on field of study, employment opportunity, type of degree
offering and student demographics:



The Art Institutes. The Art Institutes focus
on applied arts in creative professions such as graphic design,
interior design, web design and interactive media, digital
filmmaking, media arts and animation, game art and design,
fashion design and marketing and culinary arts. The Art
Institutes offer Associates, Bachelors and
Masters degree programs, as well as selective non-degree
diploma programs. Students pursue their degrees through local
campuses, fully online programs through The Art Institute of
Pittsburgh, Online Division and blended formats, which combine
on campus and online education. There are 44 Art Institutes
campuses in 23 U.S. states and in Canada. As of
October 2008, students enrolled at The Art Institutes
represented approximately 60.9% of our total enrollments.



Argosy University. Argosy University offers
academic programs in psychology and behavioral sciences,
education, business and health sciences disciplines. Argosy
offers Doctoral, Masters and undergraduate degrees.
Argosys academic programs focus on graduate students
seeking advanced credentials as a prerequisite to initial
licensing, career advancement
and/or
structured pay increases. Students pursue their degrees through
local campuses, fully online programs and blended formats. There
are 19 Argosy University campuses in
13 U.S. states. As of October 2008, students enrolled
at Argosy University represented approximately 16.7% of our
total enrollments.



Brown Mackie Colleges. Brown Mackie Colleges
offer flexible Associates and non-degree diploma programs
that enable students to develop skills for entry-level positions
in high demand vocational specialties and Bachelors degree
programs that assist students to advance within the workplace.
Brown Mackie Colleges offer programs in growing fields such as
nursing, medical assisting, business, criminal justice, legal
support and information technology. There are 22 Brown
Mackie College campuses in 11 U.S. states. As of
October 2008, students enrolled at Brown Mackie Colleges
represented approximately 12.2% of our total enrollments.



South University. South University offers
academic programs in health sciences and business disciplines,
including business administration, health services management,
nursing, pharmacy, medical assisting, criminal justice and
information technology. South University offers Doctoral,
Masters, Bachelors and Associates degrees
through local campuses, fully online programs and blended
formats. There are six South University campuses in five
U.S. states. As of October 2008, students enrolled at South
University represented approximately 10.2% of our total
enrollments.

Our business model has a number of favorable financial
characteristics, including consistent historical enrollment
growth, high visibility into operational performance,
opportunity for future profit margin expansion and strong
operating cash flow generation, although the interest expense
relating to the significant indebtedness that we incurred in
connection with the Transaction has caused our net income to
decline in recent periods as compared to periods prior to the
Transaction.



History of consistent enrollment
growth. During the period from October 1998
through October 2008, we experienced a compounded annual
enrollment growth rate of 18.0%. During the same time period,
the schools that we have owned or operated for one year or
more experienced a compounded annual enrollment growth rate of
12.0%. We generally achieve growth through a number of
independent sources, including continued investment in existing
schools, the addition of schools (organically or through
acquisition) and new delivery channels, such as online. The
significant investments we have made since the Transaction in
numerous areas of our workforce, including marketing and
admissions, new campuses and online education and
infrastructure, are designed to support future enrollment.

High visibility into operational
performance. We believe that we benefit from a
business model with good insight into future revenue and
earnings, given the length of our academic programs.
Approximately 64% of our students as of October 2008 were
enrolled in Doctorate, Masters and Bachelors degree
programs, which are typically multi-year programs that
contribute to the overall stability of our student population.



Opportunity for future profit margin
expansion. Our business model benefits from scale
and permits us to leverage fixed costs across our delivery
platforms. Since the Transaction in June 2006, and
notwithstanding the increase in interest expense resulting from
the indebtedness that we incurred in connection with the
Transaction and the resulting adverse effect on our net income,
we have made significant investments in numerous areas of our
workforce in order to support future enrollment growth and
enhance the student experience. We expect that our business
model, along with the anticipated benefits of these investments,
will enable us over time to leverage our fixed costs as we add
new locations and expand our existing locations. With respect to
our online programs, we have built sufficient presence to enable
us over time to utilize shared technology and infrastructure. We
believe that our continued focus on information systems,
operating processes and key performance indicators will permit
us to enhance our educational quality, growth and profitability
over time, although we expect that expenses incurred with
respect to student financial aid initiatives will negatively
impact our profitability.



Strong operating cash flow generation. We
historically have generated strong cash flows. We benefit from
investments with attractive returns on capital and favorable
working capital balances due to advance payment of tuition and
fees. Since the Transaction, we have made significant
investments to support growth while simultaneously upgrading the
infrastructure required to leverage our delivery platforms. In
fiscal 2009, we generated cash flows from operations of $293.4
million.

All of these characteristics complement the successful outcomes
that we deliver to our students, as reflected in our student
persistence and graduate employment rates and in student
satisfaction survey data. Approximately 87% of undergraduate
students who graduated from our institutions during the calendar
year ended December 31, 2008 and were available for
employment obtained a position in their field of study or a
related field within six months of graduation.

Industry
Overview

The U.S. Department of Education estimates that the
U.S. public and private post-secondary education market for
degree-granting institutions was a $450 billion industry in
2007, representing approximately 18.2 million students
enrolled at over 4,400 institutions. According to the National
Center of Education Statistics, traditional students, who
typically are recent high school graduates under 25 years
of age and are pursuing their first higher education degree,
represent approximately 62% of the national student population.
The remaining 38% of the student population is comprised of
non-traditional students, who are largely working adults
pursuing further education in their current field or are
preparing for a new career.

We believe that there are a number of factors contributing to
the long-term growth of the post-secondary education industry.
First, the shift toward a services-based economy increases the
demand for higher levels of education. According to the
U.S. Department of Labor  Bureau of Labor
Statistics, the projected growth rate for total job openings
from 2006 to 2016 for occupations that require post-secondary
education is over 15%, nearly double the growth rate for
occupations that do not require post-secondary education.
Second, economic incentives are favorable for post-secondary
graduates. According to the U.S. Census Bureau, in 2008,
the median weekly earnings for individuals aged 25 years
and older with a Bachelors degree was approximately 66%
higher than for high school graduates of the same age with no
college experience, and the average unemployment rate in 2008
for persons aged 25 years and older with a Bachelors
degree was half that of those without college experience. Third,
government and private financial aid in various forms, including
loan guarantees,

grants and tax benefits for post-secondary students, has
continued to increase. We believe that this support will
continue as the U.S. government emphasizes the development
of a highly skilled, educated workforce to maintain global
competitiveness. Finally, the strong demand for post-secondary
education has enabled educational institutions to consistently
increase tuition and fees. According to the College Board,
public four-year colleges and universities have increased
tuition and fees by 7.4% annually on average over the last ten
years.

We believe that for-profit providers will capture an increasing
share of the growing demand for post-secondary education, which
has not been fully addressed by traditional public and private
universities. Non-profit public and private institutions can
face limited financial capability to expand their offerings in
response to the growing demand for education, due to a
combination of state funding challenges, significant
expenditures required for research and the professor tenure
system. Certain private institutions also may control
enrollments to preserve the perceived prestige and exclusivity
of their degree offerings.

As a result, we believe that for-profit, post-secondary
education providers continue to have significant opportunities
for growth. According to the National Center of Education
Statistics, the number of students at for-profit,
degree-granting institutions grew at an average annual rate of
13.7% from 1997 to 2007, compared to 2.3% growth for all
degree-granting institutions over the same period. For-profit
providers have continued their strong growth, primarily due to
the higher flexibility of their programmatic offerings and
learning structure, their emphasis on applied content and their
ability to consistently introduce new campuses and academic
programs. Despite rapid growth, the share of the post-secondary
education market that has been captured by for-profit providers
remains relatively small. In 2007, according to the National
Center for Education Statistics, for-profit institutions
accounted for 6.5% of all degree-granting, post-secondary
enrollments, up from 2.3% in 1997.

We believe that growth in online education has been supported by
favorable student outcomes, the flexibility and convenience
associated with the instructional format and the higher
penetration of broadband Internet access. According to
Eduventures Inc., a leading information services company for the
education market, online education programs generated an
estimated $11.7 billion of revenues in 2008. Eduventures
estimates that online enrollment grew by 25.3% annually from
2003 to 2008 and projects growth of 12.5% annually from 2008 to
2013.

The post-secondary education industry is highly fragmented, with
no one provider controlling a significant share of the market.
Students choose among providers based on programs and degrees
offered, program flexibility and convenience, quality of
instruction, graduate employment rates, reputation and
recruiting effectiveness. This multi-faceted market
fragmentation results in significant differentiation among
various education providers, limited direct competition and
minimal overlap between for-profit providers. The main
competitors of for-profit, post-secondary education providers
are local public and private two-year junior and community
colleges, traditional public and private undergraduate and
graduate colleges and, to a lesser degree, other for-profit
providers.

We are committed to offering quality academic programs, and we
continuously strive to improve the learning experience for our
students. We are dedicated to recruiting and retaining quality
faculty and instructors with relevant industry experience and
appropriate academic credentials. Our advisory boards help us to
reassess and update our educational offerings on a regular basis
in order to ensure the relevance of our curriculum and to design
new academic programs. We do this with the goal of enabling
students to either enter or advance in their chosen field. Our
staff of trained, dedicated career services specialists

We offer academic programs primarily through four education
systems. We have devoted significant resources to establishing,
and continue to invest in developing, the brand identity for
each education system. Through The Art Institutes, Argosy
University, Brown Mackie Colleges and South University education
systems, we have the ability to align our academic program
offerings to address the unique needs of specific student
groups. Our marketing strategy is designed to develop brand
awareness among practitioners and likely prospects in particular
fields of study. We believe that this comprehensive brand
building approach in each specific market also enables us to
gain economies of scale with respect to student acquisition and
retention costs, assists in the recruitment and retention of
quality faculty and staff members and accelerates our ability to
expand online course offerings.



Diverse program offerings and broad degree
capabilities

Our breadth of programmatic and degree offerings enables us to
appeal to a diverse range of potential students. We currently
offer academic programs in the following areas: design, media
arts, health sciences, psychology and behavioral sciences,
culinary, fashion, business, legal, education and information
technology. Approximately 64% of our students as of October 2008
were enrolled in Doctorate, Masters and Bachelors
degree programs, which are typically multi-year programs that
contribute to the overall stability of our student population.
We monitor and adjust our education offerings based on changes
in demand for new programs, degrees, schedules and delivery
methods.



National platform of schools and integrated online
learning platform

The combination of our national platform of schools and
integrated online learning platform provides students at three
of our education systems with flexible curriculum delivery
options and academic programs taught on campus, online and in
blended formats. This flexibility enables our academic programs
to appeal to both traditional students and working adults who
may seek convenience due to scheduling, geographical or other
constraints.

We have 92 primary locations across 28 U.S. states and
in Canada. Our campuses are located primarily in large
metropolitan areas, and we focus our marketing efforts on
generating demand primarily within a
100-mile
radius of the campus. Throughout our history, we have invested
in our campuses in order to provide attractive and efficient
learning environments. Our schools offer many amenities found in
traditional colleges, including libraries, bookstores and
laboratories, as well as the industry-specific equipment
necessary for the various programs that we offer.

Our online presence offers a practical and flexible solution for
our students without compromising quality. We have made a
significant investment in online education by strengthening our
online presence within The Art Institutes, Argosy University and
South University education systems. We have introduced new
online academic programs, strengthened our technology
infrastructure, hired additional faculty and staff and increased
our spending on marketing and admissions. We intend to continue
to invest in the expansion of our online program offerings and
our marketing efforts to capitalize on our well-known branded
schools in order to expand our online presence. As of
July 2009, approximately 26,200 students were enrolled in
fully online programs.



Strong management team with a focus on long-term
performance

Since the Transaction, we have enhanced the depth and experience
of our senior management team, recruiting a number of executives
with specialized knowledge in key functional areas, such as
technology, marketing and finance. The current executive team
has been

instrumental in directing investments to accelerate enrollment
growth and build infrastructure to establish a platform for
sustainable long-term growth. Furthermore, our school presidents
and senior operating executives have substantial experience in
the sector and have contributed to our history of success. We
plan to continue to build our strong management team as we
execute on our long-term growth strategy.

Our Growth
Strategy

We intend to support our growth through these three channels:



Introduce new and existing academic programs across our
national platform of schools

We seek to identify emerging industry trends in order to
understand the evolving educational needs of our students and
graduates. With the assistance of over 1,500 industry experts
and employers who actively participate on curriculum advisory
teams, we are able to rapidly develop new academic programs that
address specific market opportunities. We are also able to
tailor our existing proprietary content for courses across our
degree programs. New academic programs that we have introduced
since the Transaction include Masters degree programs in
Interior Design, Management, Principal Preparation and Health
Services Management, Bachelors degree programs in
Entertainment Design, Hotel and Restaurant Management and
Hospitality Management, and Associates degree programs in
Accessory Design, Early Childhood Education, Restaurant and
Catering Operations, Registered Nursing and Veterinary
Technician.

In addition to developing new academic programs, we frequently
introduce existing academic programs to additional locations in
our national platform of schools, allowing us to drive
incremental enrollment growth, utilize our existing curriculum
development in multiple locations and capitalize on identified
market needs.

Our investments in online education have enabled us to increase
the number of students enrolled in fully online academic
programs from approximately 4,600 students as of July 2006 to
approximately 26,200 students as of July 2009. We believe that
the fully online programs offered by The Art Institute of
Pittsburgh, Online Division, Argosy University and South
University allow us to offer academic programs that meet the
needs of a wide range of distance learning students. In
addition, our 92 schools operate under brands that are
well-known within various fields, and we believe that our online
programs benefit from our strong campus presence and related
marketing expenditures. Online offerings are also a cost
effective means for us to utilize many of our existing education
curricula and generate attractive returns on capital. We intend
to continue to invest in the expansion of our online program
offerings and enhance our marketing efforts to capitalize on our
well-known branded schools and further expand our online
presence.



Develop new school locations in attractive markets

We believe that many attractive locations are available to open
additional campuses across the United States. We have identified
target locations in new geographic markets, as well as
opportunities to open additional campuses within existing large
metropolitan areas. Because of the relatively large number of
potential markets available for opening new campuses, we focus
our efforts on markets that we believe offer the most attractive
projected growth and return on capital. We rigorously analyze
employment statistics and demographic data in order to align our
new schools with the specific educational needs of a targeted
market. This focus enables penetration and presence for new
schools. After entering a market, we drive incremental growth
through the introduction of new academic programs and degrees,
which

enhance return on investment in new markets. We pursue
additional efficiencies through our centralized and standardized
infrastructure, systems and processes.

In addition, although we believe that our diverse platform of
program and degree offerings provides significant future growth
opportunities, we routinely consider acquisition opportunities
to increase the breadth of our education systems or provide
unique programmatic exposure within new markets.

Student
Recruitment and Marketing

Our diverse and metrics-based marketing activities are designed
to position us as a leading provider of high quality educational
programs, build strong brand recognition for our education
systems and disciplines, differentiate us from other educational
providers and stimulate enrollment inquiries. We target a large
and diverse market, including traditional college students,
working adults seeking a high quality education in a traditional
college setting and working adults focused on the practicality
and convenience of online education and career advancement
goals. In marketing our programs to prospective students, we
emphasize the value of the educational experience and the
academic rigor of the programs, rather than the cost or speed to
graduation.

Our marketing personnel employ an integrated marketing approach
that utilizes a variety of lead sources to identify prospective
students. These lead generation sources include web-based
advertising, which generates the majority of our leads, and
further include purchasing leads from aggregators, television
and print media advertising, radio, local newspaper, telephone
campaigns and direct mail campaigns. In addition, referrals from
current students, alumni and employers are important sources of
new students. We also employ approximately
250 representatives who present at high schools. These
representatives also participate in college fairs and other
inquiry-generating activities. In fiscal 2009, our marketing
efforts generated inquiries from approximately 3.5 million
prospective students as compared to approximately
2.4 million inquiries in fiscal 2008. Marketing and
admissions expense represented approximately 21.9% and 21.0% of
net revenues in fiscal 2009 and fiscal 2008, respectively.

Upon a prospective students initial indication of interest
in enrolling at one of our schools, an admissions representative
initiates communication with the student. The admissions
representative serves as the primary contact for the prospective
student and helps the student assess the compatibility of his or
her goals with our educational offerings. Our student services
personnel work with applicants to gain acceptance, arrange
financial aid and prepare the student for matriculation. Each
admissions representative undergoes a standardized training
program, which includes a full competency assessment at the
programs conclusion. Since the Transaction, we have
significantly increased our number of admissions
representatives. As of June 30, 2009, we employed
approximately 2,600 admissions representatives throughout our
schools, representing a 180% increase since June 30, 2006.

Student
Admissions and Retention

The admissions and entrance standards of each school are
designed to identify those students who are best equipped to
meet the requirements of their chosen fields of study and
successfully complete their programs. In evaluating prospective
students, we seek individuals with, among other things, a strong
desire to learn, passion for their area of interest and
initiative. We believe that a success-oriented student body
results in higher retention and placement rates, increased
student and employer satisfaction and lower student default
rates on government loans. To be qualified for admission to one
of our schools, each applicant must have received a high school
diploma or a General Education Development certificate.
Applicants to our graduate and Doctorate programs are required
to have received an undergraduate degree as a condition to
admission. Most of our schools interview prospective students to
assess their qualifications, their interest in the programs
offered by the school and their commitment to their education.
In addition, the curricula, student services, education costs,
available financial resources and student housing options, if
applicable, are reviewed during interviews.

Due to our broad program offerings, our students come from a
wide variety of backgrounds. The estimated average age of a
student at all of our schools during fiscal 2009 was
approximately 28 years old.

Our students may fail to finish their programs for a variety of
personal, academic or financial reasons. To reduce the risk of
student withdrawals, each of our schools devotes staff resources
to advising students regarding academic and financial matters,
part-time employment and, if applicable, housing. Remedial
courses are mandated for our undergraduate and graduate students
with lower academic skill levels, and tutoring is encouraged for
students experiencing academic difficulties. Our net annual
persistence rate, which measures the number of students who are
enrolled during a fiscal year and either graduate or advance to
the next fiscal year, for all of our students was approximately
66% in fiscal 2009 as compared to approximately 68% in fiscal
2008 due primarily to the increase in fully online students
during fiscal 2009.

Education
Programs

The relationship of each of our schools with potential employers
for our students plays a significant role in the development and
adaptation of the school curriculum. Most of our schools have
one or more program advisory boards composed of members of the
local and regional communities or employers in the fields which
we serve. These boards provide valuable input to the
schools education department, which allows the school to
keep programs current and provide students with the training and
skills that employers seek.

Our wide range of academic programs culminate in the awarding of
diploma certificates and a variety of degrees. In the fall of
2008 and 2007, the enrollment by degree for all our schools was
as follows:

2008

2007

Bachelors degrees

49.5

%

48.8

%

Associates degrees

27.3

%

26.2

%

Diploma and Certificates

8.7

%

10.3

%

Doctorate degrees

7.9

%

8.4

%

Masters degrees

6.6

%

6.3

%

The type of degrees and programs we offer vary by each of our
schools. The following summarizes the principal academic
programs offered at each of our education systems as of
June 30, 2009. Not all programs are offered at each school
location within an education system.

In addition to the programs listed above, we own Western State
University College of Law, which offers Juris Doctor degrees,
and the Ventura Group, which provides courses and materials for
post-graduate licensure examinations in the human services
fields and continuing education courses for
K-12
educators.

Graduate
Employment

We measure our success as an educator of students to a
significant extent by the ability of our students to find jobs
in their chosen field of employment upon graduation from our
schools. Most of our schools provide career development
instruction to our students in order to assist the students in
developing essential job-search skills. In addition to
individualized training in interviewing, networking techniques
and resume-writing, most of our schools require students to take
a career development course. Additionally, we provide ongoing
placement resources to our students and recent graduates. Career
services departments also assist current students in finding
part-time employment while attending school. Students in certain
of our Doctorate programs spend up to a year in a paid
internship in their chosen field.

Each schools career services department plays a role in
marketing the schools curriculum to the community in order
to produce job leads for graduates. Career services advisors
educate employers about the caliber of our graduates. These
advisors participate in professional organizations, trade shows
and community events to keep apprised of industry trends and
maintain relationships with key employers. Career services staff
visit employer sites to learn more about their operations and
better understand their employment needs. As of June 30,
2009, the career services departments of our schools had
approximately 300 full-time employees. We estimate that our
career services departments maintain contact with approximately
70,000 employers nationwide.

Based on information collected by us from graduating students
and employers, we believe that, of the approximately 16,000
undergraduate students who graduated from our schools during the
calendar year ended December 31, 2008, approximately 87% of
the available graduates obtained employment in their fields of
study, or in related fields of study, within six months of
graduation. The graduate employment rates presented in this
prospectus exclude students who are pursuing further education,
who are deceased, who are in active military service, who have
medical conditions that prevent them from working, who are
continuing in a career unrelated to their program of study
because they currently earn salaries which exceed those paid to
entry-level employees in their field of study, who choose to
stay at home full-time or who are international students no
longer residing in the country in which their school is located.
The average salary paid to our available graduating
undergraduate students from The Art Institutes, the Brown Mackie
Colleges and South University for calendar year 2008 who
obtained employment in their fields of study, or in related
fields of study, was approximately $30,200.

In the United States, accreditation is a process through which
an institution submits itself to qualitative review by an
organization of peer institutions. Accrediting agencies
primarily examine the academic quality of the instructional
programs of an institution, and a grant of accreditation is
generally viewed as reliable authority that an
institutions programs meet generally accepted academic
standards. Accrediting agencies also review the administrative
and financial operations of the institutions they accredit to
ensure that each institution has the resources to perform its
educational mission.

Pursuant to provisions of the HEA, the U.S. Department of
Education relies on accrediting agencies to determine whether
the academic quality of an institutions educational
programs is sufficient to qualify the institution to participate
in federal financial aid programs under Title IV of the
HEA. The HEA and its implementing regulations specify certain
standards that all recognized accrediting agencies must adopt in
connection with their review of post-secondary institutions. All
of our U.S. schools are accredited by an institutional
accrediting agency recognized by the U.S. Department of
Education.

In addition to the institutional accreditations described above,
a number of our institutions have specialized programmatic
accreditation for particular educational programs. For example,
ten Art Institutes offer interior design programs that have
programmatic accreditation by the Council for Interior Design
Accreditation and 14 Art Institutes offer culinary programs
accredited by the American Culinary Federation. Ten Argosy
University locations have received accreditation by the American
Psychological Association for their Doctor of Psychology
programs and three Argosy University locations are accredited by
the Council for Accreditation of Counseling and Related
Educational Programs. Eight of our medical assisting programs
(three at South University, four at Brown Mackie Colleges and
one at Argosy University) are accredited by the Commission on
Accreditation of Allied Health Education Programs. While these
programmatic accreditations cannot be relied upon for our
schools to obtain and maintain certification to participate in
Title IV programs, they are commonly relied upon in the
relevant professions as indicators of the quality of the
academic program.

The following table shows the location of each of our campuses
at June 30, 2009, the name under which it operates, the
year of its establishment, the date we opened or acquired it and
the institutional accrediting agency (for schools accredited by
more than one recognized accrediting agency, the primary
accrediting agency is listed first).

Calendar

Fiscal Year

Year

Acquired

School

Location

Established

or Opened

Accrediting Agency

The Art Institutes

The Art Institute of Atlanta

Atlanta, GA

1949

1971

Commission on Colleges of the Southern Association of Colleges
and Schools (SACS)

Commission on Colleges of the Western Association of Schools and
Colleges;
American Bar Association

(1)

First class of students scheduled to start in October 2009.

Accrediting agencies monitor each educational institutions
performance across a broad range of areas. Monitoring is
generally performed through annual self-reporting and through
the conduct of periodic site visits by representatives of the
accrediting agency and qualified persons from peer institutions.
In the event an accrediting agency determines that such
schools performance in one or more areas falls below
certain parameters, the accrediting agency may require the
school to supply it with supplemental reports on the accrediting
agencys specific areas of concern until that school meets
the accrediting agencys performance guideline or standard.
As of June 30, 2009, four of our schools were required to
provide such supplemental reports. Of these four schools on
supplemental reporting status, two schools are required to
request and receive permission from their accrediting agency
prior to filing an application for a new location or program
offering. In addition, based upon reports recently filed with
one of our accrediting agencies, we believe that an additional
three schools will be placed on reporting for student completion
or placement rates. An accrediting agency also may order an
institution to show cause why its accreditation should not be
revoked or conditioned if it receives information leading it to
question whether the institution satisfies the requirements of
continued accreditation. An institution found not to be in
compliance with required standards may have its accreditation
revoked or withdrawn, or it may be placed on probation to more
closely monitor its compliance with accrediting requirements.

Student Financial
Assistance

Many students at our U.S. schools rely, at least in part,
on financial assistance to pay for the cost of their education.
In the United States, the largest sources of such support are
the federal student aid programs under Title IV of the HEA.
Additional sources of funds include other federal grant
programs, state grant and loan programs, private loan programs
and institutional grants and

scholarships. To provide students access to financial assistance
resources available through Title IV programs, a school
must be (i) authorized to offer its programs of instruction
by the relevant agency of the states in which it is physically
located, (ii) institutionally accredited by an agency
recognized by the U.S. Department of Education, and
(iii) certified as an eligible institution by the
U.S. Department of Education. In addition, the school must
ensure that Title IV program funds are properly accounted
for and disbursed in the correct amounts to eligible students
and remain in compliance generally with the Title IV
program regulations.

As in the United States, there are certain risks associated with
operating post-secondary institutions in Canada, including,
among other risks:



if our schools fail to comply with extensive regulations, we
could be subject to financial penalties, restrictions on our
operations or loss of external financial aid funding for our
students;



the provinces or national government may change the law or
reduce funding for student financial aid programs, which could
harm our student population and revenue;



if our schools do not maintain their approvals, they may not
operate or participate in federal student financial aid
programs; and



government and regulatory agencies may conduct compliance
reviews, bring claims or initiate litigation against us.

While most states in the U.S. support public colleges and
universities primarily through direct state subsidies, the
U.S. federal government provides a substantial part of its
support for post-secondary education in the form of grants and
loans to students who can use this support at any institution
that has been certified as eligible by the U.S. Department
of Education. Students at our U.S. schools receive loans,
grants and work-study funding to fund their education under
several Title IV programs, of which the three largest are
the FFEL program, the Direct Loan program and the Pell program.
Most of our U.S. schools also participate in the Federal
Supplemental Educational Opportunity Grant (FSEOG)
program, the Federal Perkins Loan (Perkins) program,
the Federal Work-Study program and the Academic Competitive
Grant program. A smaller number of our U.S. schools also
participate in the National SMART (Science and Mathematics
Access to Retain Talent) Grant program.

During fiscal 2009 and 2008, the net cash receipts from the
financial sources that funded our revenue from tuition and fees
for attending our post-secondary institutions were as follows
(dollars in millions):

Fiscal 2009

Fiscal 2008

% of

% of

Gross Cash

Gross

% of Net

Gross Cash

Gross

% of Net

Receipts(1)

Receipts

Revenue

Receipts(1)

Receipts

Revenue

Federal Title IV
Aid(2):

FFEL  Stafford
Loans(3)

$

1,201.4

50.1

%

59.7

%

$

838.2

42.2

%

49.8

%

FFEL  PLUS
Loans(3)

204.8

8.6

%

10.2

%

175.5

8.9

%

10.4

%

Pell Grants

188.2

7.9

%

9.4

%

131.4

6.6

%

7.8

%

Grad Plus Loans

25.2

1.1

%

1.3

%

16.1

0.8

%

1.0

%

FSEOG Awards

12.2

0.5

%

0.6

%

11.5

0.6

%

0.7

%

Perkins Loans

5.0

0.2

%

0.2

%

7.4

0.4

%

0.4

%

Other Title IV
Aid(4)

2.8

0.1

%

0.1

%

2.1

0.1

%

0.1

%

Total Federal Title IV Aid

1,639.6

68.5

%

81.5

%

1,182.2

59.6

%

70.2

%

Private Loans

263.6

11.0

%

13.1

%

374.8

18.9

%

22.3

%

Education Finance Loan Program

19.2

0.8

%

1.0

%







Cash Payments

410.2

17.1

%

20.4

%

368.0

18.6

%

21.8

%

State Grants

52.7

2.2

%

2.6

%

48.2

2.4

%

2.9

%

Canadian Financial Aid

8.5

0.4

%

0.4

%

9.1

0.5

%

0.5

%

Total Cash
Receipts(5)

$

2,393.8

100.0

%

119.0

%

$

1,982.3

100.0

%

117.7

%

Net
Revenue(6)

$

2,011.5

$

1,684.2

(1)

Cash receipts are net of the return
to the federal student financial aid programs of all unearned
funds from students who withdraw from a program of study.

(2)

Equals Title IV financial aid
received by students attending (i) The Art Institutes
during quarters starting during the fiscal year except for The
New England Institute of Art, where the summer semester
beginning in May was included in the following fiscal year;
(ii) Argosy University during the summer semester that
began in May prior to the beginning of the fiscal year and the
fall and winter semesters that began during the fiscal year;
(iii) South University during the quarters starting during
the fiscal year, except that campus based students attending the
summer quarter beginning at the end of June and fully online
students attending the quarter beginning in May were included in
the following fiscal year; (iv) Brown Mackie Colleges
during quarters starting during the fiscal year; and
(v) Western States University during semesters starting
during the fiscal year.

(3)

Includes loans received by students
under the Direct Loan program.

(4)

Includes receipts from the Academic
Competitive Grant program and the National SMART Grant program.

(5)

Total cash receipts include
stipends, or financing received by students in excess of the
tuition and fees that they pay to our schools, which we receive
from financing sources on behalf of students. Stipends are
generally used by students to fund living expenses while
attending school. Total stipends paid to students during fiscal
2009 and 2008 were $403.0 million and $340.9 million,
respectively. Aid received from the Federal Work Study program
is excluded from total cash receipts along with institutional
aid, employee reimbursement of tuition payments and
institutional scholarships.

(6)

The difference between net revenue
and gross cash receipts paid by students to attend our
post-secondary institutions primarily relates to stipends
received on behalf of students and the effect of timing
differences between cash-basis and accrual-basis accounting,
including changes in student accounts receivable balances.

FFEL and Direct Loans. The FFEL and Direct
Loan programs consist of two types of loans: Stafford loans,
which are made available to students regardless of financial
need, and Parent Loan for

Undergraduate Students (PLUS) loans, which are made
available to parents of undergraduate students classified as
dependents and to graduate and professional students. The
primary difference between the FFEL and the Direct Loan programs
is that the FFEL program is administered and funded by private
sources while the U.S. Department of Education provides the
administration and funds for the Direct Loan program. While all
of our schools are eligible to participate in the Direct Loan
program, as of June 30, 2009 only Brown Mackie
College  Tucson and The Art Institute of Tucson
actively participate in the program. We anticipate that each of
our U.S. based schools will participate in the Direct Loan
program by June 30, 2010.

Effective July 1, 2008, under the Stafford loan program an
undergraduate student may borrow up to $5,500 for the first
academic year, $6,500 for the second academic year and, in
certain educational programs, $7,500 for each of the third and
fourth academic years. Students who are classified as
independent can obtain up to an additional $4,000 for each of
the first and second academic years and, depending upon the
educational program, an additional $5,000 for each of the third
and fourth academic years. Students enrolled in programs higher
than a bachelor-level program can borrow up to $20,500 per
academic year. Students enrolled in certain graduate-level
health professions can receive an additional $12,500 per
academic year. During fiscal 2008, undergraduate students only
were permitted to borrow up to $3,500 for the first academic
year, $4,500 for the second academic year and, in certain
educational programs, $5,500 for each of the third and fourth
academic years under the Stafford loan program. Currently, PLUS
loans may be obtained by parents of a dependent student in an
amount not to exceed the difference between the total cost of
that students education (including allowable educational
expenses) and other aid to which that student is entitled.

Pell. Pell grants are the primary component of
Title IV programs under which the U.S. Department of
Education makes grants to undergraduate students who demonstrate
financial need. Every eligible student is entitled to receive a
Pell grant; there is no institutional allocation or limit.
Effective as of July 1, 2009, the maximum amount of
availability of a Pell grant increased to $5,350 per year from a
maximum of $4,731 per year in fiscal 2009. Additionally,
effective as of July 1, 2009, certain students who attend
school for an entire fiscal year in some cases will be eligible
for additional Pell grant awards. The maximum available to an
eligible student under the Pell grant program depends on student
need and other factors.

FSEOG. FSEOG awards are designed to supplement
Pell grants for the neediest undergraduate students. FSEOG
grants at our schools generally range in amount from $300 to
$1,200 per year. However, the availability of FSEOG awards is
limited by the amount of those funds allocated to an institution
under a formula that takes into account the size of the
institution, its costs and the income levels of its students. We
are required to make a 25% matching contribution for all FSEOG
program funds disbursed. Resources for this institutional
contribution may include institutional grants and scholarships
and, in certain U.S. states, portions of state grants and
scholarships.

Perkins. Eligible undergraduate students may
borrow up to $5,500 under the Perkins program during each
academic year, with an aggregate maximum of $27,500 for students
with at least two years of study. Eligible graduate students may
borrow up to $8,000 in Perkins loans each academic year, with an
aggregate maximum of $60,000. Perkins loans have a 5% interest
rate and repayment is delayed until nine months after a student
ceases enrollment as at least a half-time student. Perkins loans
are made available to those students who demonstrate the
greatest financial need. Perkins loans are made from a revolving
account. Congress has not supplied any new federal capital
contributions to the Perkins program in several years. When
Congress last funded the program, 75% of the new funding was
contributed by the U.S. Department of Education and the
remainder by the applicable school. Each school collects
payments on Perkins loans from its former students and re-lends
those funds to currently enrolled students. Collection and
disbursement of Perkins loans is the responsibility of each
participating institution. During fiscal 2009, we collected
approximately $4.4 million from our former students. We
were not required to make any matching contributions in fiscal
2009.

Federal Work-Study. Under the Federal
Work-Study program, federal funds are made available to pay up
to 75% of the cost of part-time employment of eligible students,
based on their financial need, to perform work for the
institution or for off-campus public or non-profit
organizations. Most of our schools participate in the Federal
Work-Study program. In order to participate in the program, each
year a school must have at least 7% of the schools Federal
Work-Study program allocation paid to students performing
community service work and at least one student in a literacy
job. In fiscal 2009, all of our schools met this requirement.

New Title IV Programs. Effective
July 1, 2006, Congress enacted two new Title IV
federal aid programs, the Academic Competitive Grant
(ACG) and the National SMART (Science and
Mathematics Access to Retain Talent) Grant. Both of these new
programs require students to be eligible for a Pell grant and to
attend school on a full-time basis. The ACG is designed for
students in degree programs who recently have graduated from a
high school at which they were enrolled in a rigorous
curriculum. Students may receive a maximum of $750 under ACG
during their first academic year and $1,300 during their second
academic year. The National SMART Grant is designed for students
in their third or fourth academic year with a cumulative grade
point average of 3.0 or greater in certain designated
bachelors degree or higher programs, primarily focused on
science and math programs. Eligible students may receive up to
$4,000 in each of their third and fourth academic year.

Legislative Action. Political and budgetary
concerns can significantly affect Title IV programs.
Congress generally reauthorizes the HEA approximately every six
years. In August 2008, the HEA was reauthorized through at least
September 30, 2014. The HEA reauthorization, among other
things, revised the 90/10 Rule, as described in more detail
under  Federal Oversight of Title IV
Programs  The 90/10 Rule ,
revised the calculation of an institutions cohort default
rate, required additional disclosures and certifications with
respect to non-Title IV private loans and prohibited
certain activities or relations between lenders and schools to
discourage preferential treatment of lenders based on factors
not in students best interests. In addition, Congress
determines federal appropriations for Title IV programs on
an annual basis. Congress also can make changes in the laws
affecting Title IV programs in those annual appropriations
bills and in other laws it enacts between HEA reauthorizations.
In September 2007, legislation was enacted which, among other
things, decreased private lender and guaranty agency yields for
participation in the FFEL program, decreased student interest
rates on Stafford loans and limited repayment obligations for
students who receive loans pursuant to Title IV programs.
Since a significant percentage of our revenue is derived from
Title IV programs, any action by Congress that
significantly reduces Title IV program funding or the
ability of our schools or students to participate in
Title IV programs would have a material adverse effect on
our business, results of operations or financial condition.

Legislative action also could increase our administrative costs
and require us to adjust our practices in order for our schools
to comply fully with Title IV program requirements. For
example, President Obama has introduced a budget proposal and a
committee in the U.S. House of Representatives has approved
a bill that would require all new federal student loans after
July 1, 2010 to be made through the Direct Loan program.
While all of our schools are eligible to participate in the
Direct Loan program, only Brown Mackie College 
Tucson and The Art Institute of Tucson actively participated in
the Direct Loan program as of June 30, 2009.

Other
Financial Assistance Sources

Students at several of our U.S. schools participate in
state aid programs. In addition, certain students at some of our
U.S. schools receive financial aid provided by the
U.S. Department of Veterans Affairs, the
U.S. Department of the Interior (Bureau of Indian Affairs)
and the Rehabilitative Services Administration of the
U.S. Department of Education (vocational rehabilitation
funding). Effective August 1, 2009, the Post 9/11 Veterans
Educational Assistance Act of 2008 will provide additional
educational funding to eligible veterans who served in the U.S.
military. Our schools also provide institutional grants and
scholarships to qualified students. In fiscal 2009,
institutional scholarships had a value equal to approximately 3%
of our net revenues.

There are private supplemental loan programs available to our
students, and those programs allow students to repay a portion
of their loans after graduation and make loans available to
students with lower than average credit ratings. The primary
objective of these loan programs is to facilitate funding which
students can use to pay a portion of their tuition and fees that
they are unable to pay through personal resources or
government-backed loan programs. Such loans are without recourse
to us or our schools, except for repurchase obligations under
the Education Finance Loan program that we introduced in August
2008. Revenues derived indirectly from private loans to students
at our schools, excluding loans under the Education Finance Loan
program, represented approximately 13.1% and 22.3% of our net
revenues in fiscal 2009 and 2008, respectively. During fiscal
2009, loans under the Education Finance Loan program represented
approximately 1.0% of our net revenues.

Approximately 79% of the private loans in fiscal 2009 were
offered by Sallie Mae and its affiliates and serviced by its
affiliated loan servicer. During fiscal 2009, adverse market
conditions for consumer student loans have resulted in providers
of private loans reducing the attractiveness
and/or
decreasing the availability of private loans to post-secondary
students, including students with low credit scores who would
not otherwise be eligible for credit-based private loans. In
order to provide student loans to certain of our students who do
not satisfy the new standard underwriting, we pay credit
enhancement fees to certain lenders (including Sallie Mae) based
on the principal balance of each loan disbursed by the lender.
An agreement we entered into with Sallie Mae to provide loans to
certain students who received a private loan from Sallie Mae
prior to April 17, 2008 and are continuing their education
but who do not satisfy Sallie Maes current standard
underwriting criteria expires in June 2010.

The Education Finance Loan program enables students who have
exhausted all available
government-sponsored
or other aid and have been denied a private loan to borrow a
portion of their tuition and other educational expenses.
Students or a co-borrower must meet certain eligibility and
underwriting criteria. Under the program, we purchase loans made
by a private lender to students who attend our schools. We
estimate that additional disbursements under this program during
fiscal 2010 will be approximately $75 million.

Availability
of Lenders

While students attending our U.S. schools may choose any private
provider of federally guaranteed student loans, students use a
limited number of lending institutions to obtain their federally
guaranteed loans to help pay their direct costs of attendance.
While we believe that other lenders or the Direct Loan program
would be willing to make federally guaranteed student loans to
our students if federally guaranteed loans were no longer
available from our current lenders, there can be no assurances
in this regard. In addition, the HEA requires the establishment
of lenders of last resort in every state to ensure that loans
are available to students at any school that cannot otherwise
identify lenders willing to make federally guaranteed loans to
its students.

We estimate that four student loan guaranty agencies guaranteed
over 90% of all federally guaranteed student loans made to
students enrolled at our U.S. schools during fiscal 2009.
We believe that other guaranty agencies would be willing to
guarantee federal loans to our students if any of the current
agencies ceased guaranteeing those loans or reduced the volume
of loans they guarantee, although there can be no assurances in
this regard.

Federal
Oversight of Title IV Programs

Our U.S. schools are subject to audits or program
compliance reviews by various external agencies, including the
U.S. Department of Education, its Office of Inspector
General and state, guaranty and accrediting agencies. The HEA
and its implementing regulations also require that an
institutions administration of Title IV program funds
be audited annually by an independent accounting firm. If the
U.S. Department of Education or another regulatory agency
determines that an institution has improperly disbursed
Title IV or state program funds or violated a provision of
the HEA or state law or their implementing regulations, the
affected institution may be required to repay such funds to

the U.S. Department of Education or the appropriate state
agency or lender and may be assessed an administrative fine and
be subject to other sanctions. Although we endeavor to comply
with all federal and state laws and implementing regulations, we
cannot guarantee that our interpretation of the relevant rules
will be upheld by the U.S. Department of Education or other
agencies, or upon judicial review.

If the U.S. Department of Education is dissatisfied with an
institutions administration of Title IV programs, it
can transfer, without prior notice or judicial review, the
institution from the advance system of receiving Title IV
program funds to the cash monitoring or reimbursement method of
payment, under which a school may have to advance its own funds
to students and provide documentation to the
U.S. Department of Education that the funds were properly
disbursed prior to receiving reimbursement from Title IV
programs.

Violations or alleged violations of Title IV program
requirements also could subject us to other civil and criminal
proceedings and sanctions, suits under the federal False Claims
Act, limitations on our operations and ability to open new
locations, or administrative proceedings to impose fines or
limit, suspend or terminate our eligibility for participation in
Title IV programs. The U.S. Department of Education
also may initiate an emergency action to temporarily suspend an
institutions participation in Title IV programs
without advance notice if it determines that a regulatory
violation creates an imminent risk of material loss of public
funds.

The HEA requires each accrediting agency recognized by the
U.S. Department of Education to undergo comprehensive
periodic review by the U.S. Department of Education to
ascertain whether such accrediting agency is adhering to
required standards. We are not aware of any reason why any of
the agencies that accredit our institutions would not be
approved as a result of such review. In any event, if an
accreditation agency is not approved by the U.S. Department
of Education, the HEA grants affected institutions reasonable
opportunity to apply for accreditation from a different agency.

Cohort Default Rates. If an institutions
FFEL/Direct Loan cohort default rate equals or exceeds 25% for
each of the three most recent federal fiscal years, it no longer
will be eligible to participate in the
FFEL/Direct
Loan and Pell programs for the remainder of the federal fiscal
year in which the U.S. Department of Education determines that
such institution has lost its eligibility and for the two
subsequent federal fiscal years. If an institutions
FFEL/Direct Loan cohort default rate exceeds 40% for any single
fiscal year, it no longer will be eligible to participate in the
FFEL and Direct Loan programs for the remainder of the federal
fiscal year in which the U.S. Department of Education determines
that such institution has lost its eligibility and for the two
subsequent federal fiscal years. If, at any given point, an
institutions Perkins cohort default rate equals or exceeds
50% for each of the three most recent federal fiscal years it no
longer will be eligible to participate in the Perkins programs
for the remainder of the federal fiscal year, in which the
U.S. Department of Education determines that such
institution has lost its eligibility and for the two subsequent
federal fiscal years.

None of our schools has had an FFEL/Direct cohort default rate
of 25% or greater for any of the last three consecutive federal
fiscal years. The most recent year for which FFEL/Direct cohort
default rates have been calculated is federal fiscal year 2006.
The official weighted average combined FFEL/Direct cohort
default rate for borrowers at our schools for federal fiscal
year 2006 was 5.4%, and our individual schools rates
ranged from 1.0% to 11.3%. The draft weighted average combined
FFEL/Direct cohort default rates for borrowers at our schools
for fiscal 2007, which will be finalized in September 2009, was
8.1% and our individual schools rates ranged from 1.7% to
14.4%.

Under the recently enacted HEA reauthorization, an
institutions cohort default rate for the 2009 federal
fiscal year, as well as subsequent federal fiscal years, will be
based on the rate at which its former students who enter
repayment during the year default on their FFEL and Direct loans
on or before the end of the second year following the year in
which they entered repayment. The 2009 cohort default rate will
include students who enter repayment between October 1,
2008 and September 30, 2009 and who default on or before
September 30, 2011. As a result of the extended default
period, most institutions respective cohort default rates
are expected to materially increase when rates based upon the
new calculation method first are published after October 1,
2011. The recently

enacted HEA reauthorization provides some relief from the
anticipated increase in cohort default rates by increasing the
default rate threshold from 25% to 30% effective October 1,
2011 and by requiring that the rate as calculated under the old
methodology will be used in determining sanctions associated
with high cohort default rates until the federal fiscal year
beginning October 1, 2013.

If an institutions FFEL/Direct cohort default rate equals
or exceeds 25% in any of the three most recent federal fiscal
years, or if its cohort default rate for loans under the Perkins
program exceeds 15% for the most recent federal award year (July
1 through June 30), that institution may be placed on
provisional certification status for up to three years.
Provisional certification by itself does not limit an
institutions access to Title IV program funds but
does subject that institution to closer review by the
U.S. Department of Education and possible summary adverse
action if that institution commits a material violation of
Title IV program requirements.

To our knowledge, the U.S. Department of Education
considers provisional certification based on an
institutions exceeding the cohort default rate thresholds
described in the previous paragraph only when that institution
is otherwise subject to a U.S. Department of Education
renewal of certification review. As of June 30, 2009, 22 of
our schools had Perkins cohort default rates in excess of 15%
for students who were to begin repayment during the federal
award year ended June 30, 2008, the most recent year for
which such rates have been calculated. Funds from the Perkins
program did not exceed 3% of these schools respective net
revenues in fiscal 2009. None of these schools has been placed
on provisional certification for this reason.

Each of our schools whose students participate in the
FFEL/Direct program maintains a student loan default management
plan if its default rate equals or exceeds 5%. Those plans
provide for extensive loan counseling, methods to increase
student persistence and completion rates and graduate employment
rates, strategies to increase graduate salaries and, for most
schools, the use of external agencies to assist the school with
loan counseling and loan servicing after a student ceases to
attend that school. These activities are in addition to the loan
servicing and collection activities of FFEL/Direct lenders and
guaranty agencies. The historical default rates experienced by
Argosy University and Western State University College of Law
have been relatively low, and therefore these schools have
engaged in significantly fewer default management activities.

Regulatory Oversight. The U.S. Department
of Education is required to conduct periodic reviews to
determine whether to renew the eligibility and certification of
every institution participating in Title IV programs.
Generally such reviews occur every six years, although it
typically occurs after three years for an institution on
provisional certification. A denial of renewal of certification
precludes a school from continuing to participate in
Title IV programs. Currently all of our schools are
operating under a Provisional Program Participation Agreement
with the U.S. Department of Education due to the change of
control of the Company which occurred in connection with the
Transaction.

Financial Responsibility Standards. Education
institutions participating in Title IV programs must
satisfy a series of specific standards of financial
responsibility. The U.S. Department of Education has
adopted standards to determine an institutions financial
responsibility to participate in Title IV programs. The
regulations establish three ratios: (i) the equity ratio,
intended to measure an institutions capital resources,
ability to borrow and financial viability; (ii) the primary
reserve ratio, intended to measure an institutions ability
to support current operations from expendable resources; and
(iii) the net income ratio, intended to measure an
institutions profitability. Each ratio is calculated
separately, based on the figures in the institutions most
recent annual audited financial statements, and then weighted
and combined to arrive at a single composite score. The
composite score must be at least 1.5 in order for the
institution to be deemed financially responsible without
conditions or additional oversight. If an institution fails to
meet any of these requirements, the U.S. Department of
Education may set restrictions on the institutions
eligibility to participate in Title IV programs.
Institutions are evaluated for compliance with these
requirements as part of the U.S. Department of
Educations renewal of certification process and also
annually as each institution submits its audited financial
statements to the U.S. Department of Education. Following
the Transaction, the U.S. Department of Education
separately considered our and our schools compliance with
the financial

responsibility requirements at our consolidated level. Our
financial statements did not satisfy the financial
responsibility standards for fiscal 2009 on a consolidated basis
and will not for the foreseeable future. We are required by the
U.S. Department of Education to post a letter of credit and
are subject to provisional certification and additional
financial and cash monitoring of our disbursements of
Title IV funds due to our failure on a consolidated basis
to satisfy the financial responsibility standards after the
completion of the Transaction resulting from the amount of debt
we incurred to complete the Transaction. The amount of this
letter of credit is currently set at 10% of the Title IV
program funds received by students at our schools during the
prior fiscal year. As a result, we posted an $87.9 million
letter of credit in October 2006. Due to increases in the
aggregate amount of Title IV funds received by our students, we
currently post a $120.5 million letter of credit with the
U.S. Department of Education. The letter of credit, provisional
certification and financial and heightened cash monitoring will
be in effect until at least June 2010 and are likely to continue
beyond that date. The implementation of heightened cash
monitoring has not materially impacted our cash flows from
operations.

Return of Title IV Funds. Institutions
that receive Title IV funds must follow requirements that
ensure the return to the federal student financial aid programs
of all unearned funds of a student who withdraws from a program.
If refunds are not properly calculated and timely paid,
institutions are subject to adverse actions by the
U.S. Department of Education. We posted a letter of credit
for three of our schools because our fiscal 2008 independent
audit indicated that such schools had exceeded federal
thresholds for allowable number of late refunds during at least
one of its two most recent fiscal years. Our independent audits
for fiscal 2009 are currently in process. We have instituted
practices and procedures at recently acquired schools to
expedite refunds of federal program funds, including payment of
refunds by electronic fund transfers.

Administrative Capability
Requirements. Regulations of the
U.S. Department of Education specify extensive criteria an
institution must satisfy to establish that it has the requisite
administrative capability to participate in
Title IV programs. These criteria require, among other
things, that the institution comply with all applicable federal
student financial aid regulations, have capable and sufficient
personnel to administer Title IV programs, have acceptable
methods of defining and measuring the satisfactory academic
progress of its students, provide financial aid counseling to
its students and submit all reports and financial statements
required by the regulations. If an institution fails to satisfy
any of these criteria, the U.S. Department of Education may
require the repayment of federal student financial aid funds,
transfer the institution from the advance system of payment of
Title IV program funds to the cash monitoring or
reimbursement method of payment, place the institution on
provisional certification status or commence a proceeding to
impose a fine or to limit, suspend or terminate the
participation of the institution in Title IV programs.

Restrictions on Operating Additional
Schools. The HEA generally requires that certain
educational institutions be in full operation for two years
before applying to participate in Title IV programs.
However, under the HEA and applicable regulations, an
institution that is certified to participate in Title IV
programs may establish an additional location and apply to
participate in Title IV programs at that location without
reference to the two-year requirement if such additional
location satisfies all other applicable requirements. In
addition, a school that undergoes a change of ownership
resulting in a change of control (as defined under the HEA) must
be reviewed and recertified for participation in Title IV
programs under its new ownership. All of our schools are
currently provisionally certified due to the Transaction. During
the time when a school is provisionally certified, it may be
subject to summary adverse action for a material violation of
Title IV program requirements and may not establish
additional locations without prior approval from the
U.S. Department of Education. However, provisional
certification does not otherwise limit an institutions
access to Title IV program funds. Our expansion plans are
based, in part, on our ability to add additional locations and
acquire schools that can be recertified. The
U.S. Department of Education has informed us that it will
not seek to impose growth restrictions on any of our schools as
a result of the Transaction.

The 90/10 Rule. Under a provision
of the HEA commonly referred to as the 90/10 Rule,
an institution will cease to be eligible to participate in
Title IV programs if, on a cash accounting basis,

more than 90% of its revenues for each of two consecutive fiscal
years were derived from Title IV programs. If an
institution loses its Title IV eligibility under the 90/10
Rule, it may not reapply for eligibility until the end of two
fiscal years. Institutions which fail to satisfy the
90/10 Rule for one fiscal year are placed on provisional
certification. For our schools that disbursed federal financial
aid during fiscal 2009, the percentage of revenues derived from
Title IV programs on a cash accounting basis ranged from
approximately 55% to 86%, with a weighted average of
approximately 70% as compared to a weighted average of
approximately 65% in fiscal 2008. We anticipate that our 90/10
rates will continue to increase in fiscal 2010 due to recent
increases in grants from the Pell program and other
Title IV loan limits, coupled with decreases in the
availability of state grants and private loans and the inability
of households to pay cash due to the current economic climate.
While our consolidated
90/10 rate
for fiscal 2010 is projected to remain under the 90% threshold,
we project that some of our institutions will exceed the 90%
threshold if we do not continue to successfully implement
certain changes to these institutions during the fiscal year
which would decrease their
90/10 rate,
such as increases in international and military students and
certain internal restructuring designed to achieve additional
operational efficiencies. In prior years, we have successfully
addressed 90/10 rate issues when they have arisen through
similar changes to operations. Additionally, the revised rules
included in the new HEA reauthorization include relief through
June 30, 2011 from a $2,000 increase in the annual Stafford
loan availability for undergraduate students which became
effective July 1, 2008. We anticipate that our 90/10 rate
will increase substantially in fiscal 2012 in the event that
relief from this additional $2,000 is not extended beyond
June 30, 2011, which would adversely affect our ability to
comply with the 90/10 Rule.

The U.S. House of Representative Committee on Education and
Labor passed a bill in July 2009 which, among other things,
would extend relief from the recent $2,000 increase in
undergraduate Stafford / Direct loans until
July 1, 2012, would not deem an institution ineligible to
participate in Title IV programs for violating the 90/10
Rule until it violated the rule for three consecutive fiscal
years, and would not place an institution on provisional
certification for violating the 90/10 Rule until it violated the
rule for two consecutive fiscal years. The bill is subject to
further consideration and revision by the House and Senate and
has not been enacted into law.

Restrictions on Payment of Bonuses, Commissions or Other
Incentives. An institution participating in the
Title IV programs may not provide any commission, bonus or
other incentive payment based directly or indirectly on success
in securing enrollments or financial aid to any person or entity
engaged in any student recruiting or admission activities or in
making decisions regarding the awarding of Title IV program
funds. Effective July 2003, the U.S. Department of
Education published regulations to attempt to clarify this
so-called incentive compensation law. The
regulations identify 12 compensation arrangements that the
U.S. Department of Education has determined are not in
violation of the incentive compensation law, including the
payment and adjustment of salaries, bonuses and commissions in
certain circumstances. The regulations do not establish clear
criteria for compliance in all circumstances, and the
U.S. Department of Education has announced that it no
longer will review and approve individual schools
compensation plans prior to their implementation. Although we
cannot provide any assurances that the U.S. Department of
Education will not find deficiencies in our compensation plans,
we believe that our current compensation plans are in compliance
with the HEA and the regulations promulgated by the
U.S. Department of Education.

State
Authorization and Accreditation Agencies

Each of our U.S. campuses, including our campuses that
provide online programs, is authorized to offer education
programs and grant degrees or diplomas by the state in which
such school is physically located. The level of regulatory
oversight varies substantially from state to state. In some
U.S. states, the schools are subject to licensure by the
state education agency and also by a separate higher education
agency. Some states have sought to assert jurisdiction over
online educational institutions that offer educational services
to residents in the state or that advertise or recruit in the
state, notwithstanding the lack of a physical location in the
state. State laws may establish standards for instruction,
qualifications of

faculty, location and nature of facilities, financial policies
and responsibility and other operational matters. State laws and
regulations may limit our ability to obtain authorization to
operate in certain states or to award degrees or diplomas or
offer new degree programs. Certain states prescribe standards of
financial responsibility that are different from those
prescribed by the U.S. Department of Education. If we are
found not to be in compliance with an applicable state
regulation and a state seeks to restrict one or more of our
business activities within its boundaries, we may not be able to
recruit or enroll students in that state and may have to cease
providing services and advertising in that state, which could
have a material adverse effect on our student enrollment and
revenues.

Each of our U.S. schools is accredited by a national or
regional accreditation agency recognized by the
U.S. Department of Education, and some educational programs
are also programmatically accredited. The level of regulatory
oversight and standards can vary based on the agency. Certain
accreditation agencies prescribe standards that are different
from those prescribed by the U.S. Department of Education.

If a school does not meet its accreditation or state
requirements, its accreditation
and/or state
licensing could be limited, modified, suspended or terminated.
Failure to maintain licensure or institutional accreditation
makes a school ineligible to participate in Title IV
programs.

Certain of the state authorizing agencies and accrediting
agencies with jurisdiction over our schools also have
requirements that may, in certain instances, limit our ability
to open a new school, acquire an existing school, establish an
additional location of an existing school or add new educational
programs.

Canadian
Regulation and Financial Aid

The Art Institute of Vancouver is subject to regulation in the
Province of British Columbia and in the provinces in which it
recruits students. Depending on their province of residence, our
Canadian students may receive loans under the federally funded
Canada Student Loan Program
and/or
provincial funding from their province of residence. Canadian
schools must meet eligibility standards to administer these
programs and must comply with all relevant statutes, rules,
regulations and requirements. We believe that The Art Institute
of Vancouver currently holds all necessary registrations,
approvals and permits and meets all eligibility requirements to
administer these governmental financial aid programs. If The Art
Institute of Vancouver cannot meet these and other eligibility
standards or fails to comply with applicable requirements, it
could have a material adverse effect on our business, results of
operations, cash flows or financial condition.

The British Columbia government, through its Ministry of
Advanced Education, regulates private career colleges through an
arms length accreditation and registration body called the
Private Career Training Institutions Agency of British Columbia
(PCTIA) and provides financial assistance to
eligible students through the StudentAid BC (SABC).
The student aid program includes a federal component under the
Canada Student Loan Program and a provincial portion
administered through the provincial SABC program. In order to
maintain the right to administer student assistance, The Art
Institute of Vancouver must abide by the rules, regulations and
administrative manuals and Memorandum of Agreements with the
Canada Student Loan Program and the SABC Student Loans Plan.

Institutions cannot automatically acquire student aid
designation through the acquisition of other student aid
eligible institutions. In the event of a change of ownership,
including a change in controlling interest, the Ministry of
Advanced Education as well as SABC require evidence that the
institution has continued capacity and a formal undertaking to
comply with registration and student aid eligibility
requirements. Given that the Province of British Columbia and
PCTIA periodically revise their respective regulations and other
requirements and change their respective interpretations of
existing laws and regulations, we cannot assure you that the
provincial government and PCTIA will agree with our
interpretation of each requirement.

Canadian schools are required to audit their administration of
student aid programs annually or as otherwise directed by SABC.
We believe that we have complied with these requirements.

At June 30, 2009, we employed approximately
11,300 full time employees, of whom approximately 2,700
were faculty members, and approximately 2,100 part-time
employees, of whom approximately 1,800 were faculty members. In
addition, we also employed approximately 5,600 adjunct
faculty members at June 30, 2009. Adjunct faculty members
are employed on a term-to-term basis, while part-time faculty
members work a regular part-time schedule.

Competition

The post-secondary education market is highly fragmented and
competitive. Our schools compete for students with traditional
public and private two-year and four-year colleges and
universities and other for-profit providers, including those
that offer distance learning programs. Many public and private
colleges and universities, as well as other for-profit
providers, offer programs similar to those we offer. Public
institutions receive substantial government subsidies, and both
public and private institutions have access to government and
foundation grants, tax-deductible contributions and other
financial resources generally not available to for-profit
providers. Accordingly, public and private institutions may have
facilities and equipment superior to those in the for-profit
sector and often can offer lower effective tuition prices. Some
of our competitors in both the public and private sectors also
have substantially greater financial and other resources than we
do.

Seasonality in
Results of Operations

Our quarterly revenues and income fluctuate primarily as a
result of the pattern of student enrollments at our schools. The
seasonality of our business has decreased over the last several
years due to an increased percentage of students enrolling in
online programs, which generally experience fewer seasonal
fluctuations than campus-based programs. Our first quarter is
typically our lowest revenue recognition quarter due to student
vacations.

In connection with this offering, we amended and restated our
articles of incorporation and intend to amend and restate our
by-laws. The following summary contains references to provisions
of our by-laws, including the composition of the Board of
Directors and its committees, the election and term of service
of directors and compensation committee interlocks, that will be
in effect upon the completion of this offering or within the
time period prescribed by the Nasdaq listing rules.

Directors and
Executive Officers

The following table sets forth information regarding our
directors, nominees for director and executive officers,
including their ages as of August 31, 2009. Our directors
are elected annually to serve until the next annual meeting of
the shareholders or until their successors are duly elected and
qualified. Executive officers serve at the request of the Board
of Directors. The Board of Directors has determined that Samuel
C. Cowley, Leo F. Mullin and Michael K. Powell are independent
in accordance with the listing standards for companies with
securities listed on Nasdaq.

Name

Age

Position

Todd S. Nelson

50

Chief Executive Officer and Director

Robert A. Carroll

44

Senior Vice President  Chief Information Officer

Joseph A. Charlson

39

Senior Vice President  Strategic Operations

Anthony F. Digiovanni

59

Senior Vice President  Chief Marketing Officer

Danny D. Finuf

49

President, Brown Mackie Colleges

Anthony J. Guida Jr.

47

Senior Vice President  Regulatory Affairs and
Strategic Development

John R. Kline

46

President, EDMC Online Higher Education

J. Devitt Kramer

45

Senior Vice President, General Counsel and Secretary

John M. Mazzoni

46

President, The Art Institutes

Stacey R. Sauchuk

49

Senior Vice President  Academic Programs and
Student Affairs

John T. South, III

62

Senior Vice President, Chancellor, South University and Chairman
of the Board of Directors of Argosy University